P RE CE DE NT I AL UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT

N o. 08- 2036

C O U N C IL T R E E C O M M U N IC A T IO N S , IN C .; B E T H E L N A T IV E C O R P O R A T IO N ; T HE M I NOR I T Y M E DI A AND TELECOM M UN I CA TI ON S COU NC I L, P eti ti o n ers

v . F E D E R A L C O M M U N IC A T IO N S C O M M IS S IO N ; UNI T E D S T AT E S OF AM E RI CA , R e sp o n d e n ts C T IA -W IR E L E S S A s s o c ia tio n a n d T -M o b ile U S A , In c ., I nt ervenorR es pondent s ( PerC l erk O r derof 4/ 28/ 08) C E L L C O P A R T N E R S H IP d/b/ a V eri zon W i rel ess, I nt ervenorR es pondent( PerC our tO r derof 6/ 30/ 08)2 O n Pet i t i on forR evi ew of O r der s of the Feder al C om m uni cat i ons C om m i s s i on ( FC C N os . 06- 52, 06- 78 and 08- 92)

A r gued D ece m ber1, 2009 Be f o r e : F I S HE R, HAR DI M AN a n d S T AP L E T ON , C irc u it

Judges

. ( Fi l ed: A ugus t24, 2010)

D enni s P. C orbet t( A r gued) S. J enel l T r i gg L ernerSent er 2 0 0 0 K S t r e e t , N

. W. W as hi ngt on, D C 20006 A t t orneys f

or P et i t i on ers R ober tB

. N i chol s on R o b ert J. W igg ers U ni t ed St at es D epart m entof J us t i ce A ppel l at e Sect i on R oom 3228 9 5 0 P e n n s y lv a n ia A v e n u e , N .W

. W as hi ngt on, D C 20530- 0000 A t t or neys f

orR es pondent s U SA J os eph R

. Pal m or e ( A r gued) L aur ence N

. B our ne Feder al C om m uni cat i ons C om m i s s i on3 O ffi ce of G ener al C ouns el 4 4 5 1 2 S t r e e t , S

. W.

th W as hi ngt on, D C 20554 At t o r n e y s f o rRe s p o n d e n t s FCC Ian H

. G ersh en g o rn E lai n e J. G o lden b erg J enner& B l ock 1099 N ew Y or k A venue Sui t e 900 W as hi ngt on, D C 20001- 0000 A t t orneys f

or Int erveno r C T

IA W i rel ess Assn A ndr ew G

. M cB r i de W i l eyR ei n 1 7 7 6 K S tr e e t, N .W

. W as hi ngt on, D C 20006- 0000 A tto rn e y s fo r In ter v e n o r C e llco P a rtn e rs h ip J onathan E. N uecht er l ei n ( A r gued) W il m er C u tl er P icke ri n g H ale & D o rr 1 8 7 5 P e n n s y l v a n i a A v e n u e , N

. W. W as hi ngt on, D C 20006 A t t or neys f

orI nt er venorT Mobi l e U

SA T hom as G ut i err ez L uk as, N ace, G uti err ez & S achs 1650 T y s ons B oul evar d Sui t e 1500 M cLean, V A 22102- 00004 C ar l N

. N or t hr op C ar s on H

. Sul l i van P au l, H asti n g s, Jan o fsk y& W alke r 8 7 5 1 5 th S tr e e t, N .W

. Sui t e 1000 W as hi ngt on, D C 20005- 0000 A tto rn e y s fo r P ro

p o se d A m icu s R e sp o n d e n ts E ric L . B e rn th a l L at ham & W at kins 5 5 5 1 1 th S tr e e t, N .W

. Sui t e 1000 W as hi ngt on, D C 20004- 0000 C ar l N

. N or t hr op P au l, H asti n g s, Jan o fsk y& W alke r 8 7 5 1 5 th S tr e e t, N .W

. Sui t e 1000 W as hi ngt on, D C 20005- 0000 A t t or neys f

orP r opos ed I

nt er venorR es

pondent Je n e b a J. G h a tt Sui t e 700 2 W i s cons i n C i r cl e C hevyC has e, M D 20815 A t t orney for A m i cus P et i t i on ers

OPI NI ON O F THE COURT5 H A R D IM A N , C i r cui tJudge

. T h is d isp u te c o m e s to u s f o r th e f o u rth tim e . A t issu e is a cha l l enge t o s om e of t he rul es t hatgoverned the part i ci pat i on of s m al l w i r el ess t el ephone s ervi ce pr ovi der s i n auct i ons of el ect r o m ag n eti c sp ec tr u m co n d uct ed byt he Feder al C o m m u n icati o n s C o m m issi o n (F C C o r th e C o m m issi o n ). T he FC C i s authori ze d to gr antl i cens es forthe us e of b a n d s o f th e e lec tro m a g n e tic sp e c tru m a n d h a s d o n e so c h ief ly t hr ough auct i ons for defi ned geogr aphi c m arket s . B eca us e the law re q u ire s th e F C C to p ro m o te th e p a rticip a tio n o f sm a ll bus i ness es i n t he us e of the s pectrum , i thas defi ned a c l as s of desi gn at ed en t i t i es ( D E s) w hich ar e el i gibl e for biddi ng credi t s. T hese credi t s ar e add ed to the d oll ar am ou nt of the D E s’ bids, t o m ake i teas i erfort hem t o w i n s pectrum l i cens es atauct i on. T he pet i t i oner s her e ar e ( 1) C ounci l T r ee C om m uni cat i ons , an i nves t ori n D E s ; (2) B ethel N at i ve C orporat i on , a sm al l w i rel ess carri er based i n A l aska w ho se sto c k is o w n e d b y A las k a n n a tiv e s; an d (3 ) th e M in o rityM e d ia and T el ecomm uni cat i ons C ounci l ( M M T C ) , a t rad e group rep rese n tin g m ino ri ty -ow n ed tel ec o m co m p an ies. P eti ti o n ers s eek r evi ew of m ul t i pl e or der s i n an FC C rul emaki ng ent i t l ed In r e I m pl em entat i on of

the C om m er ci alSpectr um E nhancem ent A ct and Moder niz at i on of the C om m is s i on’s C om pet i t i ve B i ddi ng R ul es and P r ocedur es , W T D o c k e t N o . 0 5 -2 1 1 , in w h ich th e F C C c h a n g e d th e q u a lific a tio n s f o r D E sta tu s a s w e ll a s t h e r e s t i tu t i o n t h a tmu s tb e ma d e b ya l i c e n s e e t h a tl o s e s DE statu s af ter t a k in g ad v an tage o f b idd ing cre d it s. P eti ti o n ers cl ai m t hatt hes e ru les (1) w er e ena ct ed w i t houtt he not i ce a nd6 oppor tuni t yforcom m entr equi r ed bythe A dm i ni s t r at i ve P ro c e d u re A c t (A P A ), an d (2 ) a re a rb itrar ya n d c a p ric io u s, in vi ol at i on of the A PA

. Pet i t i oner s as k us t o r es ci nd t he r es ul t s of appr oxi m at el y$33 bi l l i on w ort h of auc t i ons h el d underthe chal l enged rul es , and t o or der t he FC C t o conduct new auct i ons un der new rul es. I.

A . Leg al

Back gr ound A l t hough t he FC C pos s es s es br oad autho ri tyt o auct i on l i censes t o use po rt i on s of t he electrom agn et i c spect rum , i tm ust pr om o t e “ e c onom i c opportuni t yand compet i t i on . . . byavoi di ng exce s s i ve conc entr at i on of l i cens es a nd bydi s s emi nat i ng lice n se s a m o n g a w id e v a rie tyo f a p p lic a n ts, in c lu d in g sm a ll b u s i n e s s e s [ a n d ] ru r a l t e l e p h o n e c o mpa n i e s . ” 4 7 U. S

. C. § 3 0 9 (j)(3 ) ( B ). T h e F C C m u st a lso “ e n su re th a t sm a ll bus i nes s es [and] rur al t el epho n e compani es . . . ar e gi ven the oppor tuni t yt o par t i ci pat e i n t he pr ovi s i on of s pect rum - bas ed s ervi ces , and, fors uch purpos es , cons i der t he us e of t ax cert i fi cat es , bi ddi ng pr efe r ence s , and ot h er pr ocedur es . ” I d. § 3 0 9 (j )(4)(D ). C ons i s t entw i t h t hes e s t atut orym andat es , i n conduct i ng spect rum aucti on s the F C C off ers biddi ng credi t s thati ncrease t he bi ds of s m al l ent i t i es , i n an amount m eas ur ed as a per cent age o f th e e n ti ti e s’ in iti a l b id s. A f ter a D E su b m its its b id , this cr edi ti s added t o t he bi d for purpos es of det erm i ni ng t he w i nner of th e au cti on. I f the D E w i ns the auc t i on, how ever , i tw i l l be r equi r ed t o pay onl y t he amount of i t s i ni t i al bi d, notthe amount7 t hati ncl udes t he cr edi t
. T he cr edi t s ar e ava i l abl e as fol l ow s : ( 1) a 15% cr edi tforent i t i es aver agi ng annual gr os s r evenue s of $40 m i l l i on orl es s overt he l as tt hr ee y ear s ; ( 2) a 25 % cr edi tfor enti t i es averaging annua l gross revenu es of $15 m i l l i on or l ess overt he l as tthree y ear s ; and ( 3) a 35% cr edi tforent i t i es averaging $3 m i l l i on or l ess i n av erage reve n u e s over the las t t hr ee y ear s . 47 C

. F.R

. § 1

. 2110( f) ( 2) ( i ) t o ( i i i )

. A l t hough t he F C C d e f in e s th e ter m “ d e sig n a ted e n ti ties ” to m e a n “ sm a ll b u s in e s s e s ” g e n e ra lly, s ee i d. § 1. 2110( a) , t he t erm i s r el evant h ere onl yi nsofa r as i trefer s t o b i dd ers w ho qu al i fyfor these credi t s. T h e b id d in g -c re d it sy ste m c o u ld b e a b u s e d b ysm a ll compani es w i l l i ng t o i m m ed iat el ym onet i ze thei rbi ddi ng cr edi t s bys el l i ng t hei rs pectrum l i cens es at m arketpr i ces , orby l ar ge compani es t aki ng advant age of cr edi t s t hr ough aff i l i at es or puppetcorpor at i ons t hatt echni cal l y qual i fy as D E s . T o pr event t his , t he F C C i s r equ i red t o seek the “avo i dan ce of un j ust enr i chmentt hr ough t he met hods empl oy ed t o aw ar d” s pectrum lic e n s e s , 4 7 U .S .C . § 3 0 9 (j )( 3 )( c ), a n d to e s ta b lis h “ s u c h

. . . ant i t r aff i cki ng r es t r i cti ons and paym ents chedul es as m aybe necessaryt o pr eventunj us tenr i chmentas a r es ul tof the m e th o d s e m p lo y ed to i ssu e l icen ses an d p e rm its .” I d. § 3 0 9 ( j ) ( 4 ) ( E)

. I n t h e ru l e ma k i n g a ti s s u e h e r e , t h e F CC adopt ed thr ee r egul at i ons of thi s type. F ir st , t o pr events ubs i di ar i es oraff i l i at es of l ar ge b u s i n e s s e s f

r o m q u a l i f

y i n g f o r D E c r e d i t s , 4 7 C. F

. R. § 1 .2 1 1 0 (b )(1 )(i) p ro v id e s th a t:8 [t]he g ross rev en u es o f th e a p p li ca n t ( o r l icen see ), i t s aff i l i at es , i t s contr ol l i ng i nt er es t s , t he af fi l i at es o f i t s contr oll i ng i nter est s, and the en t i t i es w i th w h ich it h a s a n a ttribu tab le m a ter ial re latio n sh ip s hal l be att r i b u ted t o the appl i cant( orl i cens ee) and consi der ed on a c um ul at i ve bas i s and aggr egat ed forpurpos es of det erm i ni ng w hether t he appl i cant( or l i cens ee) i s el i gi bl e for s t atus as a s m a ll b u s in e s s [ .] I ns ofaras i tappl i es to an appl i cant ’ s aff i l i at es and contr ol l i ng i nte re sts , an d th e a f

f ili a tes o f a n a p p lica n t’s c o n tro lli n g i nter est s, t hi s r evenue at t r i but i on rul e i s l ong- s t andi ng and i s notcont es t ed her e. I ns t ead, i n t he cha ll enged rul emaki ng t he FC C i m pos ed r evenue at t r i but ion fo r“ent i t i es w i t h w hi ch [the appl i cantor l i cens ee] has an at t r i but abl e m at er i al r el at i ons hi p, ” and de fi ned t he phr as e “a t t r i but abl e mat er i al r el at i ons hi p. ” Thatdefi ni t i on app ears i n 4 7 C

. F

. R

. § 1

. 21 10 (b) (3) (i v)( B ) and st at es: [ a ]n a p p lica n t o r lice n se e h a s a n a ttribu tab le m aterial re lat ion sh ip w h en ith as o n e o r m o re arr angement s w i t h anyi ndi vi dual ent i t yfort he lea se o r re sa le ( in c lu d in g u n d e r a w h o les a le agr eement ) of, on a c um ul at i ve bas i s , m or e than 25 per centof the s pectrum capa ci t y of anyone of t he ap pli cant’ s or l i censee’s l i censes. Th e s e c o n d c h a l l e n g e d r e g u l a t i o n i s 4 7 C. F

. R. § 1

. 2 1 1 0 ( b ) ( 3 ) ( i v ) ( A) , wh i c h wa s p r o mu l g a t e d f o r t h e f i r s tt i me i n the rulem aking ati ssue here and p rovi des:9 [a] n appl i cantorl i cens ee t hat w oul d otherw i s e be e lig ib le f o r d e sig n a ted e n tity b e n e f its u n d e r th is se c tio n a n d a p p lica b le se rv ice -sp e c if ic r u les sh a ll be i nel i gi bl e fors uch ben ef it s i f the appl i cantor l i cens ee ha s an i m per m i s s i bl e mat er i al r el at i ons hi p. A n appl i cantorl i cens ee has an i m pe r mi s s i b l e ma t e r i a l r e l a t i o n s h i p whe n i th as arr angement s w i t h o n e orm or e ent i t i es forthe lea se o r re sa le ( in c lu d in g u n d e r a w h o les a le agr eeme n t ) of, on a cumul at i ve bas i s , m or e than 50 per centof the s pectrum capa ci t yof anyone of t he ap pli cant’ s or l i censee’s l i censes. T hu s, un l i ke an “at t ri bu t able m at eri al rel at i on shi p, ” a bu si ness t hathas an im

p e rm iss ib le m at eri al rel at i on shi p is ip so fa c to dis qu al i fi ed from recei ving biddi ng credi t s. T h i r d , t h e FCC h a s r e c o g n i z e d t h a tu n j u s te n r i c h me nt w ill o c c u r if re c ip ien ts o f b id d in g c re d its a re p e rm itt e d to pr om pt l ys el l t hei rs pectrum r i ght s t o non- D E s ata pr emi um , or t o all yt hem sel ves w i th lar g e enti t i es i n such a w ayas t o lose t heirD E st atus. T o preven t t his , 47 C

. F

. R

. § 1

. 21 11 (d) (1) st at es: [a] l i cens ee that ut i l i zes a bi ddi ng cr edi t , and that dur i ng t he ini t i al t erm s eeks t o as s i gn ortr ans fer contr ol of a l i cens e t o an ent i t ythatdoes notm eet t he el i gi bi l i t ycr i t er i a for a bi ddi ng cr edi t , w i l l be r equi r ed t o r ei m bur s e the U

. S. G overnm entfor th e a m o u n t o f t h e b id d in g c re d it, p lu s in te re s t . .

. as a condi t i on of C om m i s s i o n appr oval of the as s i gnm entort r ansf

er. . . . I f, w i t hi n t he i ni t i al10 t erm of the l i cense, a l i cense e t hat ut i l i zes a b id d in g c re d it se e k s to m a k e a n yo w n e rsh ip change ort o ent eri nt o a mat er i al r el at i ons hi p ( s ee § 1. 2110) t hat w oul d r es ul t i n t he l i cens ee l os i ng el i gi bi l i t y for a bi ddi ng cr edi t
. . . t he amountof t he b i d d i n g c r e d i t
. . . p l u s i n t e r e s t
. . . mus tbe pai d t o t he U

. S. G overnm entas a condi t i on of C om m i s s i on appr oval of the as s i gnm entor tr a n s f e r . . . . If a D E li c e n se e tak e s a c tio n th a t d o e s n o t re n d e r it w h o lly ineligible f

o r a b id d in g cre d it , b u t l ea v es iteli g ible o n lyfo r a s m al l ercr edi tt han the one i tus ed t o acqui r e a l i cens e, t he d if f e re n c e in v a lu e b e tw e e n th e tw o c re d its m u s t b e re p a id

. I d. T hi s r epaym ent obl i gat i on exi s t ed bef or e the rul emaki ng ch al l enged byPet i t i oner s her e. A ti s s ue i n t hi s pet i t i on i s t he len g th o f tim e a f te r a D E w in s a lice n se u sin g a b id d in g c re d it t hati ti s s ubj ectt o t he r epaym en t r equi r ement
. A l t hough the m o st e f f e c tiv e m e th o d to p re v e n t m isu se o f b id d in g c re d its w oul d be t o r equi r e t hat a D E w i nni ng a l i cens e w it h such c re d its b o th m a in tain its D E sta tu s a n d h o ld th e lice n se u n til it expi r ed, i tappea r s t hat t he F C C has l ong appl i ed a mor e l eni ent rule in o rde r t o p e rm it D E s to p arti cipa te i n the s ec o n d ary m arketfors pectrum r i ght s , and t o al l ow D E s t o at t r act i nves t m entcapi t al t hat m i ght be har d t o obt ai n i f ther e w er e no w a y f o rD E s t o l i q u i d a t e s u c h a v a l u a b l e a s s e t
. A c c o r d i n g l y, FC C r egul at i ons pr ovi de for a r educt i on i n the r epaym ent amount i f th e D E ’ s offe ndi ng act i on does notoccurunt i l an appr eci ab le time aft eri tw on t he l i cens e. I n t he rul emaki ng at i s s ue her e, t he FC C ext ended t h e ti m e per i od overw hi ch the11 r e p a yme n to b l i g a t i o n a p p l i e s . Be f o r e t h e ru l e ma k i n g , 4 7 C. F

. R. § 1. 2111( d) ( 2) ( i ) pr ovi ded t hat t he re qui r ed r epaym entdr opped t o 75% of t he bi ddi ng cr edi t val ue for l i cens e tr ans fer s orl os s es of D E s t atus occurr i ng up t o t w o y ear s aft er t he auc t i on, 50% of t he cr edi tfort hos e occ urr i ng dur i ng the t hi r d y earaft ert he auct i on, 25% of t he cr edi t dur i ng t he four t h y ear , and ze r o aft er f iv e y e a rs . Id

. ( eff

ect i ve thr ough J une 6, 2006)

. T he i ns t ant rul emaki ng amended § 1. 2111( d) ( 2) ( i ) t o r equi r e ful l r epaym ent of the cr edi ti f el i gi bi l i t yi s l os ti n the fi r s tfi ve y ear s aft ert he auc t i o n , 7 5 % r e p a yme n t i f e l i g i b i l i t y i s l o s t i n t h e s i xt h or sev en th y ea r, 5 0 % if eli g ibil ityis l o st i n the e igh th o r nin th y ea r, 25% i n t he t enth y ear , and el i m i nat ed t he penal t y onl yaft ert en y ears . B . The Rule m ak ing Pr oc e e ding 1

. The Fur therN

ot i ce of P r opos ed Rul em aki ng O n February3, 2006, the FC C i s s ued a Fur t herN ot i ce of Pr opos ed R ul emaki ng I n r e Im pl em entat i on of

the C om m er ci al Spectr um E nhancem ent A ct and Moder ni

z at i on of

the C o m m is s i on’s C om

pet i t i ve Bi ddi ng R ul es and P r ocedur es , 21 F

. C. C. R. 17 53 ( 20 06 ) ( he r e i na ft e r FN PR)

. The FN PR w as a r es pons e t o an ex p a rte l ett erfr om C ounci l T r ee C om m uni cat i ons ( C ounci l T r ee) , the l ead pet i t i oner her e. I n the FN PR , t he FC C agr eed w i t h C ounci l T ree ’ s vi ew “thatthe C om m i s s i on’ s curr entrul es do n otadequa t el ypr eventl ar ge corpor at i ons fr om structur i ng r el at i ons hi ps i n a mannert hat a llo w s th e m to g a in a c c e ss to b e n e f its re se rv e d f

o r sm a ll b us i nes s es . ” I

d. at1759- 60. T her efor e, t he FN PR s ought “comm ent on t he el ement s of a pr opos al r ai s ed byC ounci l T r ee12 . . . t hats eeks t o pr ohi bi tthe aw ar d of bi ddi ng cr edi t s orot her s m al l bus i nes s benef

i t s t o ent i t i es t hathave w hatC ounci l T r ee r efe r s t o as a ‘ m at er i al r el at ion s hi p’ w i t h a ‘ l ar ge i n- r egi on i ncumbentw i r el es s s ervi ce pr ovi der. ’ ” Id

. at1754 ( footnot es om i t t ed)

. T he FC C “t ent at i vel y concl ude[d] ” t h at s uch r egul at ion s w er e appr opr i at e, i d. a t 1 7 5 7 , an d “ s[ o u g h t] comm enton how [i t ] s ho u l d defi ne the el ement s of s uch a re s tr ic tio n ,” id

. at 1755, as w el l as “on w hether [i t ] s houl d [al s o] r es t r i ctt he aw ar d of des i gnat ed ent i t ybenef i t s w h ere an ot h e r wi s e q u a l i f

i e d d e s i g n a t e d e n t i t yh a s a ‘ ma t e r i al re latio n sh ip ’ w ith a lar g e e n tityth a t h a s a sig n if ica n t in ter e st in comm uni cat i ons s ervi ces , ” i d. T h ro u g h o u t th e F N P R , the F C C re itera ted th e se re q u e sts f o r c o m m e n ts in s im ila r o r i d e n tic a l te rm s . S e e i d

. , p a s s i m. It a lso so licite d c o m m e n ts in m o re sp e c if ic te rm s o n p o ss ib le var i at i ons on eac h of t he el ement s pr opos ed by C oun cil T r ee. W i t h r es pectt o t he def i ni t i o n o f “m at er i al r el at i ons hi p, ” the FC C i nquir ed w h ethe r i ts th en -cu rren t ru les req u ir ing attri b u t i on of the r evenue s of an a ppl i cant ’ s cont roll i ng i nt er es t s and aff i l i at es w er e suff

i ci ent t o pr event i m pr oper i nfl uence byl ar ge b u s in e s s e s o v e r s m a ll b id d e rs . I d. at1760- 61. T he FC C as ked w hethert hos e att ri b u ti on rul es , oranynew defi ni t i on of “mat er i al r el at i ons hi p, ” s houl d varyacc or di ng t o w hetherthey w er e appl i ed t o “l ar ge, i n- r egi on, i ncumbentw i r el es s s ervi ce p ro v id e rs” o r “ e n tit [ ies ] w ith sig n if ic a n t in ter e sts in comm uni cat i ons s ervi ces . ” I d. at1760. O f part i cul arnot e her e, t h e F CC s[ought ] comm enton w hat , i f any , s t andar d s houl d be us ed t o d eterm i ne w hethera s pectrum13 l eas i ng arr angementi s a ‘ m at er i al r el at i ons hi p’ fort he purpos e of a nyaddi t i onal r es t r i ct i on on the a v a i l a b i l i t yo f

d e s i g n a t e d e n t i t yb e n e f i t s t h a twe m i ghtadopt

. W e al s o s eek comm ent on w hether o th e r a rra n g e m e n ts s h o u ld b e tak e n in to a c c o u n t. If so , w h at arran g em en ts sho u ld w e c o n side r? I d. at1761. W i t h r es pectt o the defi ni t i on of “l ar ge, i n- r egi on, i ncumbentw i r el es s s ervi ce pr ovi der , ” the FC C s oughtcomm ent on how m uch geogr aphi c over l ap bet w een t he i ncumbent ’ s and D E ’ s s ervi ce a r eas s houl d be r equi r ed fort he “i n - r egi on” c ri te r i o n to b e m e t, id

. at17 59 , 17 62 , and w hethergross r evenue s w er e the appr opr i at e met r ic fordet erm i ni ng w hether t he i ncumbentw as “l ar ge, ” and, if so , w hatthe pr opercut off w o u ld b e . I

d. at17 59 , 17 61 -62. W ith r espectt o the phrase

“ e n tity w ith s ig n if

ic a n t in te re s ts in c o m m u n ic a tio n s s e rv ic e s ,” th e F C C in q u ir e d h o w “ la rg e ” s ta tu s s h o u ld b e d e te rm in e d , i d. at 1 7 6 1 -6 2 , w h e th e r a n “ in -re g io n ” g e o g ra p h ic a l ele m e n t sh o u ld a ls o a p p ly, id

. at1762, and how br oadl yt he phr as e “s i gni fi cant i nt er es t s i n comm uni cat i ons s ervices” s houl d be def i ned, and w h a t k in d s o f

e n titie s it s h o u ld e n c o m p a s s , i d. at1762- 63. T he FN PR al s o s oughtcomm ent

on w hether , i f w e adopt a n ew r es t r i ct i on on t he a wa r d o f b i d d i n g c r e d i t s t o d e s i g n a t e d e n t i t i e s , we s houl d adoptr evi s i ons t o ourunj us tenr i chm ent rul es s uch as t hos e pr opos ed byC ounci l T r ee, or in so m e o ther m an n er. . . . If w e re q u ir e14 r ei m bur s ement by l i cens ees t hat , ei t hert hr ough a change of ‘ m at er i al r el at i ons hi ps ’ oras s i gnm ent o r tra n sf e r o f c o n tro l o f

th e lice n se , los e th e ir el i gi bi l i t yfora bi ddi ng cr edi tpur s uantt o any el i gi bi l i t yr es t r i ct i on t hatw e m i ghtadopt , over w hatpor t i o n of the l i cens e t erm s houl d s uch u n j u s te n r i c h m e n tp r o v i s i o n s a p p l y? I d. at1763. T he FC C al s o expl i ci t l yr eques t ed co m m en t on w hether t he proposed res t ri ct i on s ri sked und uly l i m i t i ng D E s’ a b ility to ra is e c a p ita l. I d. at1761. Fi nal l y , t he FC C confi r m ed i n t he FN PR thati texpec t ed “t o compl et e this pr ocee di ng i n t i m e s o t hatanym odi fi cat i ons t o ourrul es r es ul t i ng from this pr ocee di ng w i l l appl yt o t he upcomi ng auct i on of l i cens es forA dvance d W i r el es s Ser vi ces (‘ A W S ’) , w h ic h c u rr e n tly is s c h e d u le d to b e g in J u n e 2 9 , 2 0 0 6 ,” wh i c h wa s l e s s t h a n f

o u r mo n t h s a f

t e r t h e r e l e a s e o f

t h e F NPR

. I d. at1755, 1763. T hi s auct i on— know n as “A uct i on 66”— w as th e lar g e st s p e c tru m a u c ti o n in se v e ra l y e a rs. T o a c h iev e th is g o a l , t h e c o m m e n tp e r i o d o n t h e F N P R r a n f o ro n l y 1 4 d a ys a f ter its p u b lica tio n in th e F e d e ra l R e g iste r, an d th e re p ly c o m m e n t p e ri o d la s te d o n ly o n e w e e k th e re a f te r. I d. at1753. 2

. Comm e n t

s o n th e FNPR D es pi t e t he br i ef t i m e fr ame, a num ber of comm ent s on t h e F NPR we r e s u b mi t t e d

. M o s tc o mme n t e r s s u p p o r t e d s o me c h a n g e s a lo n g th e lin e s s u g g e s te d b yth e F N P R . A r epr es ent at i ve comm enti n thi s r egar d came fr om t he D epart m entof J us t i ce, w hi ch r epor t ed thati thad15 found contr actual or otherarr angement s betw een D E s and l ar ge w i r el es s carr i er s thatcr eat ed s uch cl os e t i es betw een the tw o thatt he D E s coul d not be cons i der ed t o be trul yi ndepende ntcompet i t i ve a c t o r s ; i n s o m e o f t h e s e i n s t a n c e s , t h e DE aff i l i at ed w i t h a l ar ge w i r el es s carr i erhad not l aunche d com m er ci al s ervi ces t o end- us er c u sto m e rs o r o th e r w ire les s c a rrie rs b u t o n ly pr ovi ded r oami ng s ervi ces t o i t s l ar ge af fi l i at e. J

. A

. 1 052- 53. I n l i ghtof thi s fi ndi ng, t he D O J r ecomm ended t hat su ch a r el at i ons hi p di s qual i fythe D E , buts ugges t ed that l ow er - l evel r el at i ons hi ps , such as “arm ’ s - l ength negot i at ed agr eement s for r oami ng orbr and l i cens i ng and s uppor t , ” i d. at 1 0 5 4 , wo u l d n o tn e c e s s a r i l yb e p r o b l e ma t i c . I n s u m, t h e DOJ m ai ntai ned t hat “[a] rel at i on shi p w here the lar g e enterpri se dom i nat es t he D E i s t r oubl i ng as i ts ugges t s thatthe D E i s not w ith in the class o f e n ti ti es (i. e., sm all b u sine sses ) th at th e F C C ’s rul es ar e des i gned t o benef i t
. ” I d. Sever al comm ent s addr es s ed the appl i cat i on of the p ro p o se d ru les to sp e c tru m lea se s b yD E s to n o n -D E s. C o u n c il T re e a g re e d th a t th e su sp e c t cla ss o f a rra n g e m e n ts s h o u ld i ncl ude l eas i ng arr angement s , J

. A

. 439, ar gui ng t hats uch “agr eement s . . . conveya l evel of i nfl uence overthe oper at i ons of the d esi gnat ed ent i t yt hati s i nappr opr i at e i n t he hands of a dom i nantnat i onal w i r el es s s ervi ce pr ovi der , ” i d. at 439- 40. T he N T C H , I nc. pr opos ed that D E s s houl d be abl e t o l eas e s pectrum f r e e l y , s o l o n g a s s u b s t a n t i a l p o r t i o n s of s p e c t ru m i n t h e s a me geogr aphi c ar ea r emai ned i n us e byD E s . J

. A

. 663- 64. W i r efr ee16 Par t ner s ar gued aga i ns t anyfur t herr es t r i ct i ons on l eas i ng by D E s , J

. A

. 759- 60, butC ounci l T r ee di s agr eed, J

. A

. 873- 74. Sever al comm ent er s al s o ar gued thatthe pr opos ed cat egor i es of “l ar ge, i n- r egi on, i ncumbentw i r el es s s ervi ce p ro v id e rs” o r “ la rg e e n tit ies w ith sig n if ica n t in ter e sts in co m m u n icati o n s serv ices” w ere too n arro w . T h ese co m m en ters a rg u e d re p e a ted ly th a t th e sta tu to ry o b jec tiv e o f

a ss istin g sm a ll bus i nes s es w oul d be frus t r at ed bya bi dder ’ s m at er i al r el at i ons hi p w i t h a l ar ge bus i nes s of any ki nd, r egar dl ess of w hethert he l ar ge busi nes s w as i nvol ved i n t he comm uni cat i ons in d u s tr y . See C om m ent s of C T I A

— T he W i r el es s A s s oci at i on, J

. A

. 51 0 , 5 18 ( “the N ot i ce m a k e s n o a t t e m p tt o j u s t i f y a dis t i ncti on betw een lar ge i ncu m ben t carr i ers and anyothercl ass of non- at t r i but abl e i nves t or , ” su ch as A O L , G oogl e, or M i crosoft , bu tt he p robl em s ar i si n g from l arge i nv est ors’ dom i nance of D E s “w oul d pr es um abl yrun t o al l pot ent i al i nves t or s , notj us tl ar ge ca r r i erpar t ner s ”) ; C om m ent s of D obs on C om m ’ ns C orp. , J

. A

. 526 ( ur gi ng t he F C C t o appl yanychange s to “ a n y l a r g e , w e ll-fu n d e d in v e sto r w ith a stra teg ic in ter e st in th e u s e o f

th e s p e c t r u m ” ); C o m m e n ts o f T -M o b ile U S A , In c ., J

. A

. 697 ( “[t ] her e does notappe ar to b e a j us t i fi cat i on for perm i t t i ng M icroso ftorW al

- M artt o par t i ci pat e i n a D E j oi nt v e n tu re w h ile p re c lu d in g T -M o b ile f ro m d o in g so .”); see al so C om m ent s of V er izon W i r el es s , J

. A

. 745; C om m ent s of W i r e f r e e Pa r t n e r s I I I , LLC, J

. A. 7 6 0 ; Re p l yComme n t s o fTM obi l e USA , I n c . , J

. A. 8 1 2 ; Re p l yComme n t s o f Ci n g u l ar W i r el es s L L C , J

. A

. 833- 34. 3

. The Second Repor tand O r derand Second FurtherN ot i ce of P r opos ed Rul em aki ngT he fi r s t R epor t and O r der i s notdi r ect l yr el evanther e. 1 17 A f ter re c e ip t o f th e a f

o re m e n tio n e d c o m m e n ts, o n A p ril 25, 2006, t he FC C adopt ed and r el eas ed i t s Second R epor tand O r der a n d Second Fur t herN ot i ce of Pr opos ed R ul emaki ng ( S e c o n d R&O) , 2 1 F

. C. C. R. 4 7 5 3 ( 2 0 0 6 )

. Th e r e i n , t h e F CC 1 s t at ed i t s “part i cul ari nt ent i on . . . to en su re thatent i t i es i nel i gi bl e fordes i gnat e de n t i t yi ncent i ves cannotci r cumventour ru les b yo b tain in g th o se b e n e f its in d ire c tly , thr o u g h th e ir r el at i ons hi ps w i t h el i gi bl e ent i t i es . ” I d. a t 47 5 4

. Th e F CC acknow l edged that [t ] he cha l lenge forthe C om m i s s i on i n carr y i ng outC ongr es s ’ s pl an has al w ay s been t o fi nd a re a so n a b le b a lan c e b e tw e e n th e c o m p e tin g g o a ls o f , firs t, p r o v id in g d e sig n a ted e n tit ies w ith re a so n a b le f

lex ib ili tyin b e in g a b le to o b tain neede d fi nanci ng fr om i nves t or s and, s econd, ens ur i ng t hat t he rul es eff ect i vel ypr eventent i t i es i nel i gi bl e f

ordes i gnat ed ent i t ybenef i t s fr om ci r cumvent i ng t he i nt entof t he rul es byobt ai ni ng th o se ben efi t s i nd i rect l y , t hroug h th e ir i nv estm ents i n q uali fi ed b usi nesses. I d. at4756 ( footnot e omi t t ed)

. T o t hi s end, the FC C “agr ee[ d] w ith c o m m e n ter s th a t c e rta in a g re e m e n ts h a v e th e p o ten tial to s i gni fi ca n t l yi nfl uence a des i gnat ed ent i t yl i cens ee’ s deci s i ons r egar ding it s pr ovi s i on of s ervi ce a nd, ther efor e, al s o have the pot ent ial t o be abus ed, abs entthe appr opr i at e s afe guar ds

. ” I d. a t4 7 6 2

. I n a n a t t e mp tt o c r e a t e s u c h s a f e g u a r d s , a n d a s we18 des cr i b ed her ei n, t he Second R& O es t abl i s hed r evenue at t r i but i on for“att r i but abl e m at er i al r el at i ons hi ps , ” def i ned as t he l eas e of more t han 25% of the D E ’ s s pectrum capa ci t yby anys i n g le l es s ee, and mandat ed the l os s of D E s t atus byany lic e n s e e th a t a c q u ir e s a n “ im p e rm is s ib le m a te ri a l r e la tio n s h ip ,” byl easi n g an aggr egat e of more than 50% of i t s s pectrum c a p a c ity. I

d. at4763- 64. N ot abl y , nei t hert he 25% rul e nort he 50% rul e appl i ed onl yt o r el at i o n sh ips w i t h l ar ge ent i t i es . T hi s , s ai d t he Second R & O , w as beca us e the FC C had

co n clud e[ d ] that ce rt ain ag ree m en ts, b ytheir ve ry natur e, ar e genera l l yi ncons i s t entw i t h an appl i cant ’ s orl i cens ee’ s abi l i t yt o achi eve or m ai nt ai n des i gnat ed ent i t yel i g i b i l i t ybeca us e they a re in c o n sis ten tw i th C on gress ’s l e g isla tiv e in ten t. I n t h i s r e g a r d , whe r e a n a g r e e me n t c o n c e r n s t he ac tua l us e of the des i gnat ed ent i t y ’ s s pectrum capac it y , i ti s the agr eement , as oppos ed t o t he par t yw i t h w hom i ti s ent er ed i nt o, t hatcaus es the r el ati ons hi p t o be r i pe forabus e and c r eat es the pot ent i al forthe r el at i ons hi p t o i m pede a des i gnat ed en t i t y ’ s abi l i t yt o become a faci l i t i es - ba s e d p r ov i de r , a s i nt e nd ed b yC on gress . I d. at4762. Th e l e g i s l a t i v e i n t e n t r e f e r e n c e d i s t h a t b e h i n d 4 7 U. S

. C. § 309( j ) ( 4) ( c) , t he author i zat i on for t he F C C ’ s pr om ul gat i on of ant i t r aff i cki ng and ant i

- unj ust e nr i chmentpr ovi s i ons . T he19 H o u se o f

R e p re se n tativ e s B u d g e t C o m m itt e e ’s r e p o rt o n th is pr ovi s i on expl i ci t l ycont empl at ed i t s us e i n connec t i on w i t h t he pr omot i o n o f

s ma l l

- b u s i n e s s l i c e n s e s , a n d s t a t e d th a t“ [ t ] he C o m m itt e e a n ticip a tes th a t t h e C o m m iss io n w ill u se th is author i t yt o det er s pecul at i on and par t i ci pat i on i n t he l i cens i ng pr oces s byt hos e w ho have no i nt ent i on of off er i ng s ervi ce t o the p u b lic .” H .R . R e p . N o . 1 0 3 -1 1 1 , a t 2 5 7 -5 8 , r epr i nt ed i n 1993 U .S .C .C .A .N . 3 7 8 , 5 8 4 -8 5 . T h e S e c o n d R & O re itera ted its r e l i a n c e o n t h i s c o n g r e s s i o n a l i n t e n t s e v e r a l t i me s . 2 1 F

. C. C. R. at4755, 4760, 4762- 64, 4766. T h e S e c o n d R & O a lso e x ten d e d th e b id d in g -c re d itr epaym en t sc hedul e t o 10 y ear s . T he ext ended obl i gat i on appl i es “i f a d esignat ed ent i t yl os es i t s el i gi bi l i tyfora bi ddi ng c re d it fo r a n yre a so n , inc lu d in g b u t n o t lim ited to [ ] e n ter in g in to a n ‘im p e rm iss ib le m a ter ial re latio n sh ip ’ o r a n ‘a ttribu tab le m at er i al r el at i ons hi p. ’ ” I d. at 4766. T he FC C agai n s t at ed that

“ [ b ] ye x t e n d i n g t h e u n

j u s te n r i c h me n tp e r i o d t o t e n y e a r s , we i ncr ease the pr obabi l i t ythatthe des i gnat ed ent i t yw i l l devel op t o be a c om pet i t i ve fa ci l i t i es - bas ed s ervi ce pr ovi der

. ” I d. T he Second R& O al s o i ncl uded a Second Fur t herN ot i ce of Pr opos ed R ul emaki ng, w hi ch s oughtaddi t i onal comm enton t he el ement s of C ounci l T r ee’ s i ni t i al pr opos al , namel y , w hether t h e F CC s h o u l d i mp o s e f u r t h e rr e s t r i c t i o n s o n g r a n t s o f DE st atus t o app l i c ants hav i ng othersort s of “m at eri al rel at i on shi ps” w ith la rg e in -r e g io n in c u m b e n t w ir e le s s p ro v id e rs . I d. at4773- 74 ( s eeki ng comm ent o n the defi ni t i on of “l ar ge” a nd w hether r el at i ons hi ps w i t h non- w i r el es s bus i nes s es s houl d al s o be r egul at ed) ; 47 7 6 -78 (s eeki ng comm enton pr opr i etyand defi ni t i o n o f

“ i n - r e g i o n ” c r i t er i on) ; 4779- 84 ( s ame, on defi ni t i on20 of “m at er i al r el at i ons hi p”)

. T he F C C not ed i t s “conc ern[] that a d d iti o n a l typ e s o f re latio n sh ip s co u ld

. . . allo w [ ] a n in e lig ib le ent i t yt h e ab il i t yt o gai n undue adva nt ages i n t he comm unic at i ons m arketpl ace thr ough t he bene fi t s offe r ed t o a d e s i g n a t e d e n t i t ya p p l i c a n t , ” a n d a s k e d , “ [ a ] r e t h e n e w r u l e s we ado pt t o d a y suffici ent t o safeg uard ag ai nstm anyof these conce r ns ?” I

d. at4780. T he C om m i s s i on fur t hers t at ed, how ever , that [w ] e gene r al l ydo nothave the s ame concerns re g a rd in g re latio n sh ip s b e tw e e n d e sig n a ted e n tity a p p lica n ts a n d th o se w h o d o n o t h a v e in ter e sts in s pectrum capa ci t yort he pr ovi s i on of s ervi ce, s uch as fi nanci al i ns t i tut i ons or vent u re capi t al fi r m s , pr ovi ded that such e nt i t i es do nothave a cont r ol l i ng i nt er es t r el at i ons hi p w i t h t he a p p lica n t. Id . T h is, sa id th e F C C , w a s b e c a u se c ro ss -in d u stryin v e stm e n ts d id n o t p re se n t th e in v e sto r a n “ o p p o rtu n ityf o r it to b u n d le exis t i ng com m un i cat i on s servic es w i t h a st rat egic w i rel ess p artne r, a n d there is l ess p o tential fo r th o se e n ti ti es to ex ert undue i nfl uence overa des i gnat ed ent i t yl i cense e’ s deci s i on m aki ng r egar di ng i t s s ervi ce pr ovi s i on orthe us e of i t s l i cens ed s pectrum . ” I

d. 4

. R espon se t o the Seco ndR &O T he new rul es pr om ul gat ed i n th e Se cond R & O pr ovoked cr i t i ci s m fr om s om e D E s and thei ri nves t or s . Sever al pet i t i ons21 for rec ons i der at i on w er e fi l ed w i t h the FC C , i ncl udi ng one by t h e Pe t i t i o n e r s h e r e . Two o f Pe t i t i o n e r s ’ a r g u me n t s f or re c o n sid e ra tio n b e f

o re th e F C C a re re lev a n t h e re . F irst, P e tit io n e rs m a in tain e d th a t “[ n ]o n e o f th e n e w ru les is lim ited to ar r a ng e ment s i nv ol vi ng l a r ge , i n- r e gi on i nc umbe ntw i r e l e ss s ervi ce pr o v iders as cont empl at ed i n the Fur therN ot i ce of P r opos ed Rul e M

aki ng . ” Pet

. for E xp. R econs i d’ n, J

. A

. 1281. Second, Pet i t i oner s ar gued thatthe 10-y ea rcr edi t
- r epaym ent s ch e d u l e “ e v i s c e r a t [ e s ] a d e s i g n a t e d e n t i t y ’ s a c c e s s t o c a p i t al beca us e le nder s and i nves t or s w ho ar e bei ng as ked t o back unt es t ed new entr ant s w ant t o s ee t hat t he des i gnat ed ent i t yhas a cl ea r p ath to exi ti f the bus i nes s i s nots ucce edi ng, ” id

. at 1 2 8 1 -8 2 , an d th a t th e F C C h a d f a iled to tak e th is i n to a c c o u n t in set t i ng t he n ew rul es. B ot h of Pet i t i oner s ’ objecti ons w er e s uppor t ed bythe vi ew s of a nu m b er of ot hercomm ent er s , m os tof w hom cont act ed the FC C forthe fi rst ti m e in r es pons e t o t he Second R & O

. C at al y s tI nves t or s , L L C , w hi ch had pr ovi ded capi t al for s ever al D E s i n t he pas t and w as pl anni ng t o do s o i n connec t i on w i t h A uct i on 66, s t at ed: bot h t he equi t yand the debtm arket s w il l n o t be c o m f o rta b le w ith th e ‘1 0 Y e a r H o ld R u le,’ as it i s out s i de the nor m al hol d per i ods form os ts our ces o f c a p ital. D u e to a lac k o f re a so n a b le n o tice in t he pr ocee di ng, t he rul e ca m e as a s urpr i s e and w a s n o t th e su b

jec t o f a n ym e a n in g f

u l p u b lic in p u t. H a d su c h in p u t b e e n re c e iv e d , w e stro n g ly bel i eve the C om m i s s i on w oul d have r eal i zed that t he 10 y earper i od i s j us tt oo l ong.22 Id

. a t 1 2 4 3 ; c

f. E x P a rte Pr es ent at i on of The E ez ine tC orp. , et al

. , S. J

. A

. 91 ( s ame ar gum ent s , bya gr oup of D E fi nanci er s and D E s ) ; N ot i ce of E

x P a rte Pr es ent at i on of C ook Inl etR egi on, I nc. , J

. A

. 1487 ( s m al l carr i eral l i ed w i t h T

- M obi l e comm ent i ng t hat “[n] o s i gni fi cant i nves t or w i l l be w i l l i ng t o r i s k i t s r eturn on inv estm en t ov er a ten y ea r ho ri zo n ”); L ett er f rom the N at’l T el ecomm ’ ns C oop. A s s ’ n, J

. A

. 1508- 09 (i n d us t r ygr oup re p re se n tin g ru ra l tele c o m s, c o m p lain in g o f a lac k o f

p u b lic not i ce a nd t he shor t t i m e bet w een t he pr om ul gat i on of the rul es a n d A u c tio n 6 6 ); E

x P a rte L et t er fr om C oral W i rel ess Licenses, L L C , etal

. , J

. A

. 1547- 48 ( anothergr oup of s m al l bus i nes s es and their i n v esto rs, co m m en ti n g that “[ a] b u sine ss tr an sac ti o n w h ere there is no clea r pa th to li q u idityf o r 1 0 y ea rs i s a v ery u n attrac ti v e inv estm en t fo r th e f inan cial i n sti tuti o n s an d v en ture capi t al fi r m s t hat t r adi t i onal l yhave s upport ed w i r el es s s t art
- up ventur es , ” and thatt hey“di d n o t unde r s t and fr om t he Fur ther N ot i ce t hat change s of t hi s natur e w er e undercons i der at i on by the C o m m issi o n o r th eyw o u ld h av e c o m m en ted o n this i ssu e” ); N o tice o f

O ra l E x P a rte Pr es ent at i on of D oy on, L t d. , J

. A

. 1550 ( i nves t ori n s m al l t el ecoms comm ent i ng that“the new t en y ear unj us tenr i chments chedu le . . . m akes i tm or e di ffi cul tfor d esig n ated en ti ti es to sec u re f i nanci ng and fi nd s tr ateg ic pa rtn ers b e c a u se it i s les s lik e ly th a t th e y c a n e a sily e x it th e b u sin e ss in t he eve ntof s i gni fi cantchanges i n t he i ndus t r y ”) ; L ett erfr om R o y al S tr ee t C o m m ’ns, L L C , J. A

. 1 5 5 7 (“[ A ] tran sac ti o n w h ere there is no clea r pa th to li q u idity , w ith o u t p en alty , fo r 10 y ea rs i s a veryu n attr act i ve i nves t m entfort he types of fi nanci al i ns t i tu ti o ns and ventur e ca pi t al fi r m s thattr adi t i onal l yhave su p p o rt ed w ir eless start- u p v en tures.”).23 R o y a l S tr e e t C o m m u n ica tio n s L L C , a D E e n g a g e d in w i r el es s w hol es al i ng, obj ect ed thatt he new rul es i m pact ed arr angement s byD E s w i t h others m al l ent i t i es , as w el l as l ar ge ones . L et t erfr om R oy al St r eet C o m m ’ ns , L L C , J

. A

. 1557. R oy al St r eetcl ai m ed the new rul es pl ace d r es t r i ct ion s on w i r el es s w hol es al i ng wi t h o u t a f

f o r d i n g . . . DEs n o t i c e a n d t he oppor tuni t yt o comm ent
. . . . [T]he s e r es t r i ct i ons w i l l a l s o c o n tr i b u t e t o i n v e s t o ra n d f i n a n c i er reluc tanc e to b ac k w ir eless li ce n ses th at are e ff ec ti v ely li m it ed to a retail b u sine ss m o d el, a m odel deci dedl y m or e e x p en sive and admi ni s t r at i vel ybur dens om e. T he O r der’ s r es t r i ct i ons i gnor e the fa ctt hat w hol es al e s ervi ces a re a w ir e le s s p ro d u c t in c re a s in g ly in d e m a n d

. .

. w hi ch can add t o t he compet i t i ve opt i ons i n t he w i r el es s m arketpl ace . I d. at 15 58

. T he R ural T el ecom m un i cat i on s G roup., Inc. , al so co n tend ed that “[ t] h e n ew m aterial relati o n sh ip rules a re o v e rb r o a d a n d u n d u l y r e s t r i c t i v e , ” b e c a u s e , “ c u r r e n tDE lice n se e s w ill b e u n a b le to

. . . lea se e x is tin g sp e c tru m . . . to anotherD E w i t hout becomi ng i nel i gi bl e forD E benef i t s i n t he A W S auct i on. ” E

x P a rte L ett er fr om t he R ur al T el ecomm ’ ns G r oup, I nc. , J

. A

. 1542. 5

. T he O rder on R econ si derati on of the S econ d R &O O n J u n e 2 , 2006, t he FC C r el eas ed an O r deron R e c o n s id e r a tio n o

f th e S e c o n d R e

p o r t a n d O r d e r, 2 1 F

. C. C. R.M anyof the comm ent s j us tdes cr i bed w er e s ubm i t t ed 2 aft ert he O r deron R econs i der at i on w as r el eas ed. 24 6 7 0 3 (h e re in a f

ter th e O rd e r on R e c o n sid e ra tio n ). A lth o u g h it 2 addr es s e d t h e i s s u e s r a i s e d i n Pe t i t i o n e r s ’ p e t i t i o n f or re c o n sid e ra tio n , the O rd e r o n R e c o n sid e ra tio n d id n o t f o rm a lly gr antordenyt he pet i t i on, buti ns t ead w as r ai s ed byt he FC C “on [i t s ] ow n m ot i on. ” I

d. at6703. D efe ndi ng t he r egul at i ons agai n s tt he cha r ge thatthey w oul d undul yr es t r i ctD E s t o a r et ai l

- onl ybus i nes s m o del , t he FC C r es t at ed and c l ar i fi ed i t s pos i t i on t hatact i ve us e of a spect rum l i cense w as r equ i red t o m ai ntai n D E st atus: [ s]e c tio n 3 0 9 (j)(4 )(D ) dire c ts th e C o m m iss io n to i s s ue r egul at i ons to ‘ ens ur e’ t hatdes i gnat ed e n tit ies ‘a re g iv e n th e o p p o rtu n ityto p a rticip a te in t h e p r o v i s i o n o f s p e c t ru m - b a s e d s e r v i c e s . ’ We bel i eve thatt he w or d ‘ par t i ci pat e’ i n thi s di r ect i ve cont empl at es s i gni fi canti nvol vemen t i n the p rov i si on of servi ces t o the pub l i c, no tm ere ly pas s i ve ow ner s hi p of a l i cens e to sp ectrum us ed byot her s t o pr ovi de s ervi ce. I d. a t 6 7 0 5 n .8 (in ter n a l cita tio n o m itt e d ). In re sp o n se to Pet i t i oner s ’ ar gum ent s t hat t he mat er i al

- r el at i ons hi p rul es had not been pr oper l y not i ced, t he FC C not ed t hat t he FN P R h ad as ked w hetherD E r el at i ons hi ps w i t h ent i t i es othert han l ar ge i nr egi on i ncumbent s or ent i t i es w i t h i nt er es t s i n comm uni cat i ons s e rv ic e s s h o u ld b e re s tr ic te d a s w e ll. I d. at67 11

. T he F C C al so25 n o ted th a t th e F N P R h a d in c lu d e d a n o p e n -e n d e d in q u iryin to w ha tt yp e s o f

r e l a t i o n s h i p s s h o u l d b e r e g u l a t e d , a n d h ad sp e c if ica llyc o n tem p late d th e in c lu sio n o f lea se a rra n g e m e n ts a m o n g th o s e re la tio n s h ip s . I d. T he FC C concl uded t hat the change s embodi ed i n the fi nal rul emaki ng w er e al l cont ai ned i n, o r lo g ic a l o u tg ro w th s o f , th e p ro p o s a l in th e F N P R

. I d. at6712. W i t h r es pectt o the 10- y earcr edi t
- r epaym entper i od, t he FC C s t at ed thati t s deci s i on t o appl ythe new s ched u le to the preexi st i ng D E qu al i fi cat i on s as w el l as the n ew on es w as al so w i t hi n t he s cope of i t s or i gi nal pr opos al

. T he C om m i s s i on s t at ed that“had w e onl y r evi s ed t he fi ve- y earunj us tenr i chment s c h e d u l e f

o rc e r t a i n t yp e s o f

t r a n s a c t i o n s b u tn o tf

o r o t h e r s , we w oul d have r i s ked cr eat i ng an i l l ogi cal s cheme that w oul d have c re a ted a n in c e n tiv e f

o r d e sig n a ted e n tit ies to p rio ritize c e rta in t ypes of tr ans act i ons overot her s . ” Id

. at6716. T urni ng t o t he c o n ten tio n s th a t th e 1 0 -y e a r ru le w o u ld c a u s e D E s’ f u n d in g to dr yup, t he FC C w as

no tcon vinced t hat three t o seven y ears i s a re a so n a b le tim e f

ra m e f o r in v e sto rs to e x p e c t to re c o v e r th e ir c a p ital in v e stm e n ts in f a c ili ties to p ro v id e sp e c tru m -b a se d se r v ice s. In a re c e n tly concl uded pr ocee di ng addr es s i ng t he l eas i ng of E ducat i onal B r oadca s tSer vi ce spe ctrum , a br oad c ro ss -se c tio n o f

c o m m e n ter s, in c lu d in g a p riv a te equi t yi nves t m entfi rm , s ubm i t t ed evi dence that i ns uffi ci ent capi t al w oul d fl ow t o bus i nes s es t hat w antt o devel op t hats pectrum i f the l en g t h of spect rum l ease t erm s w as li m i t ed to fi ft een y ears . T h e se p a rties a rg u e d th a t le ss e e s n e e d e d a c c e ss to26 th e sp e c tr u m f

o r th irtyy e a rs o r m o re in o rd e r to pr ovi de the nec es s arycert ai nty t o j us t i fycapi t al i nves t m enti n t he band. T he C om m i s s i on w as ‘p e rs u a d e d b y[ th is a rg u m e n t] .’ I d. at6717 ( footnot es om i t t ed)

. Fi nal l y , t he FC C concl uded that e v e n if th e n e w ru les d id h a m p e r D E c a p italiz a tio n so m e w h a t, t hi s w as an ac cept abl e bal anci ng of the s t atut orygoal s of encour agi ng D E par t i ci pat i on on t he one ha nd w h i l e ens ur i ng t hatD E s pr ovi de “f

aci l i t i es - bas ed s ervi ce t o t he publ i c. ” I d. at 6718. C . T he Firs t P etiti on f

orR eview and

the Mandam us P etiti on O n J une 7, 2006— tw o day s befor e the O r deron R econs i der at ion w as p u bl i s hed i n t he F eder al R egis t er

— Pet i t i oner s fi l ed t hei r fi r s t pet i t i on i n t hi s C o u rt for r evi ew of t he Second R& O , t he O r deron R econs i der at i on, and t he publ i c not i ce thathad announced t he st artdat es forA uct i on 6 6 , A u cti on of

A dvance d W

i r el es s Ser vi ces Li cens es R es cheduled f

orA ugus t9, 2006 , 21 F. C

. C

. R

. 5598 ( 2006) ( her ei naft ert he Publ i c N ot i ce)

. P eti t i oner s m oved foran emer gencys t ayof A uct i on 66, w hi ch w as deni ed by a mot i ons panel of thi s C our ton J une 29, 2006. A ft erbr i efi ng and a r g u m e n t o n t h e m e r i t s , i n S e p t e m b e r 2 0 0 7 w e h e l d t h a t we l acke d j ur i s di ct i on t o ent ert ai n t he pet i t i on beca us e i tw as in c u ra b ly p re m a tu re . Co u n c i lT r e e Co mm’ n s v . FCC , 503 F. 3d 284, 293 ( 3d C i r . 2007)

. W e not ed t hat by s t atut e, pet i t i ons for j u d i c i a l r e v i e w o f

F C C a c t i o n s c a n b e f

i l e d o n l y i n th e 6 0 d a ys fol l ow i ng “the entr yof a f i nal or der

. ” I

d. at287 ( quot i ng 28I tdoes notappea rt hatt he FC C has form al l yact ed on 3 the p eti ti o n s fo r reco n side rati o n o f the S ec o n d R & O that w ere fi l ed bypar t i es ot hert han Pet i t i oner s . T hi s i s no barr i ert o our j ur i s di ct i on, how ever . I n C ounci lTre e w e h eld o n lythat “[ a]n agenc y or der i s non- fi nal as t o an aggr i eved pa r t yw hos e pet i t i on forr econs i der at i on r emai ns pendi ng befo re t he age ncy . ” 503 F. 3d at287. A nd i ndeed, “[i ] t i s w el l es t abl i s hed

. . . t hatw hen 27 U

. S. C

. § 2344, ci t i ng 4 7 U

. S

. C

. § 402( a) )

. W e al s o not ed that becau se the F C C had no tform al l ydis po sed of P et i t i on ers ’ m ot i on forr econs i der at i on of the Second R & O , thator derw as non- fi nal and ther efor e the pet i t i on fori t s r evi e w w a s pr ematur e. I d. W e furt her concl uded thatt he O r deron R econs i der at i on w as “ent er ed, ” w i t hi n t he meani ng of the s t atute, o n lyw hen i tw as publ i s hed i n t he Feder al R egi s t er , and that w e had no j ur i s di ct i on t o ent er t ai n a pet i t i on fi l ed before thi s publ i cat i on. I d. at291- 93. A ft erw e i s s ued our opi ni on, Pet i t i oner s s ought a w r i tof m andamus orderi ng the FC C t o acton t he pet i t i on for r econs i der at i on, t o fac i l i t at e j ur i s di ct i on i n t hi s C our t
. A l t hough w e dec l i ned t o i s s ue a w r i t of m andamus, on February15, 2008 w e di r ect ed the FC C t o i nform us w hen i t w oul d gr antordeny t he pet i t i on. O n M ar ch 26, 2008 t he FC C form al l ydeni ed the pet i t i on i n a br i ef Sec ond O r der on R econs i der at i on, not i ng that “w e al r eadydeci ded the mer i ts o f the Pet i t i on i n t he O r deron R econs i der at i on . ” 23 F. C

. C

. R

. 5425, 5426. W i t hi n 60 day s of t hatdeni al , on A pr i l 8, 2008, Pet i t i oner s fi l ed th is pe t i t i on for r evi ew of t he S econd R & O , O r der on R econs i der at i on, Second O r deron R econs i der at i on, and the Publ i c N ot i ce. 3t w o par t i es ar e adve r s el yaff ect ed by an age ncy ’ s act i on, one ca n p e t i t i o n f o rr e c o n s i d e r a t i o n b e f

o r e th e a g e n c ya tth e s a me t i me t hat t he ot hers eeks j udi ci al r edet erm i nat i on. ” W

. P enn Pow er Co. v . EPA , 860 F. 2d 581, 586 ( 3d C i r . 1988) ( ci t i ng A m . Farm L i nes v. B l ack B all

Frei gh tServ

. , 3 9 7 U

. S

. 5 3 2 , 5 4 1 (19 7 0 )). T hes e dat a mustbe cons i der ed i n l i ghto f t he abs ence 4 fr om A uct i ons 6 6 an d 7 3 of the s et
- as i des byw hi ch, i n pr i or a u c tio n s, o n lyD E s h a d b e e n p e rm itte d to p u rc h a se c e rta in s pectrum bl ocks

. A l s o, t he purpos e of the i ns t antrul emaki ng fr om i t s i ncept i on w as t o di s qual i fy s ham D E s , w hi ch w oul d be exp ect ed to r edu ce t he n um ber of q uali fy i ng D E s. 28 D . T he R es ult

s of A ucti ons 66 and 73 W hi l e Pet i t i o ner s ’ fi r s tpet i t i on forr evi ew w as pendi ng i n 2006, t he FC C conduct ed A uct i on 66 s ubj ec t to the rul es chal l enged he r e. T he dea dl i ne forappl i cat i ons t o b id fe ll on J une 19, 2006; D E s acc ount ed for 166 of 252 appl i cat i ons and 1 0 0 o u t o f

1 6 8 q u a lif

ie d b i d d e rs p e rm itte d to p a rt ic ip a te
. B i ddi ng comm ence d on A ugus t9, 2006, and the auc t i on gener at ed nea r l y$14 bi l l i on i n w i nni ng bi ds

. D E s w ere 5 7 of t he 104 w i nni ng bi dder s , w i nni ng 20% of the i ndi vi dual l i cens es a u c t i o n e d

. M e a s u r e d i n t e r ms o f d o l l a rv a l u e , h o wev e r , DEs w o n o n ly 4 % o f the sp ec tru m li ce n ses, a lth o u g h tw o D E s w ere a mo n g t h e t o p t e n wi n n e r s i n t e r ms o f d o l l a r a mount s . By compar i s on, i n auct i ons h eld pr i ort o the new rul es , D E s had w on, on aver age, 70% of the l i cens es bydol l arval ue. 4T he FC C , al ong w i t h i t s i nt ervenor s and am i ci , att acks 5 ou r j uri sdi ct i on t o r eview t he Pu bli c N oti ce. B ecaus e th is di s put e bea r s on t he r emedyforanydefe ct s i n the rul es under r e v i e w, r a t h e rt h a n o n t h e v a l i d i t yo f t h e r u l e s t h e ms e l v e s , we c o n s id e r i t a f

te r o u r a n a lysis o f

th e la tte r i s s u e . See i nfr a , P art III

. 29 I n l at e 2007 and e arl y2008, dur i ng and j us taft erthe pendenc ybefor e the FC C of Pet i t i oner s ’ pet i t i on for r econs i der at i on, t he FC C hel d another , even l argers pectrum auc t i o n , k n o wn a s “ Auc t i o n 7 3

. ” Auc t i o n 7 3 g e n e r a t e d about $19 bi l l i on i n w i nni ng bi d s , and w as al s o conduct ed underthe rul es chal l enged h ere . I n A uct i on 73, D E s compri s ed 119 of 214 qual i fi ed bi dder s and 5 6 o f 1 0 1 w i nner s , and w on 35% of t he i ndi vi dual l i cens es . T heyw on onl y2. 6% of the t ot al dol l ar v alue o f th e li ce n ses, ho w ev er. II. P e t i t i o n e r s n o w p e t i t i o n f o rr e v i e w o f

t h e S e c o n d R&O, t he t w o r econs i der at i on or der s , and t he P ubl i c N ot i ce. Sever al i nt er es t ed part i es , m any of t hem w i nner s at A uct i ons 66 and 73, have i nt erv ened orfi l ed am i cus cur i ae br i efs i n s uppor tof the F C C

. W e h av e jurisdicti o n to rev iew the F C C ’s fina l ord ers p u rsua n t t o 2 8 U

. S

. C

. § 2 3 4 2 (1) a n d 4 7 U

. S

. C

. § 4 0 2 (a). 5 Pet it ion er s cl ai m t he new r egul at i ons ar e i nval i d for s ever al r eas ons . Fi r s t , t heycl ai m t hatbeca us e the new rul es w e re n o t su ff

ici en tl yfo resh ad o w ed b ythe F N P R , theyw ere adopt ed w i t houtt he publ i c not i ce a nd oppor tuni t yforcomm entPet i t i oner s al s o ar gue thatthe rul emaki ng vi ol at ed the 6 Re g u l a t o r yF l e x i b i l i t yAc t( RF A) , a s c od i f i e d a t5 U. S

. C. §§ 603- 04. W e nee d notaddr es s thi s t heoryof r ecove r yfur t her beca us e, on t he fa ct s of t hi s cas e, w e r egar d i tas dupl i cat i ve of t h e APA n o t i c e - a n d

- c o mme n t c l a i m: t o t h e e x t e n tt h a tt h e F CC fai l ed to gi ve n oti ce of

the n ew rul es for R F A pu rposes, i tal so gave i nadequa t e n o ti ce f orA PA purpos es , nece s s i t at i ng a r e ma n d o n t h e l a t t e r b a s i s a l o n e . On r e ma n d , o f c o u r s e , t h e F CC m ustcom plyw i t h all R F A requi rem ents
. Pet i t i oner s m ake a nother su b si di aryar gum ent : they 7 c laim th a t t h e n e w ru les p re se n t su c h o b sta c les to sm a ll bus i nes s es ’ par t i ci pat i on i n FC C auct i ons that t heyvi ol at e 47 U

. S. C

. §309(

j ) ( 3) ( B ) ’ s r equi r ementt hatt he C om m i s s i on “s eek t o pr om ot e” the obj ect i ve of “ ec o n om i c opportuni t yand compet i t i on . . . byavoi di ng exce s s i ve conce ntr at i on of l i cens es and bydi s s emin ati n g l i cens es among a w i de var i etyof appl i can ts , i ncl udi ng s m al l bus i nes s es [and] rur al t el ephone c o m p a n ies .” B u t th e sta tu te a lso re q u ir e s th e F C C to p ro m o te t he deve l opm entand deploy m entof new t echnol ogi es and s e rv ic e s , i d. § 309(

j ) ( 3) ( A ) , r ecove ra port i on of t he val ue of the s p e c tru m a n d p re v e n t u n ju s t e n ri c h m e n t, id

. § 309( j ) ( 3) ( c) , and e n s u re “ e f

f ic ie n t a n d in te n s iv e u s e ” o f th e s p e c tru m , i d. 30 requi red b y t he A dm i nis t rat i ve P rocedu re A ct
. P et i t i on ers al so 6 ar gue t hat t he new rul es ar e arbi t r aryand capr i ci ous , beca us e the F C C m a d e n o f

in d in g s a s to th e ir im p a c t o n th e a b ili tyo f sm a ll bus i ness es t o pr ocur e fi nanci ng, and bec aus e theyi gnor e the vi abi l i t yof w hol es al i ng as a fa ci l i t i es - bas ed bus i nes s m odel for D E s . T hes e chal l enges di ffe r s l i ght l yw i t h r es pectt o the thr ee 7§ 3 0 9 ( j ) ( 3 ) ( D)

. Gi v e n th e g e n e r a l a g r e e me n tth a tth e DE pr ogr am can be abus ed, as w el l as the cont i nui ng par t i ci pat i on byD E s i n auct i ons hel d undert he new rul es , w e ca nnot con cl ud e t hat th e F C C has fail ed to prom ote s m al l -busi ness p a rticip a tio n a t all. 31 pr ovi s i ons chal l enged he r e: ( 1) the 25% att r i but i on rul e, ( 2) the 5 0 % im p e rm iss ib le- re latio n sh ip ru le, a n d (3 ) th e 1 0 -y e a r c re d itr epaym ents chedul e. A . L egal

Standard: T

he A dm inis tr ati ve Proc edur e A ct 1

. The N ot i ce- and- C om m ent

R equi r em ent U ndert he A PA , fede r al agenc i es m us tpubl i s h “ei t herthe t er ms o rs u b s t a n c e o f

th e p r o p o s e d ru l e o ra d e s c r i p t i o n o f the s ub j e c t s a nd i s s ue s i nv ol ve d. ” 5 U. S. C. § 55 3( b) ( 3)

. The A PA fur therr equi r es t hat“[a ] ft ernot i ce r equi r ed byt hi s s ect i on, t he a g e n c ysh a l l give i nter est e d p e rso n s a n o p p o rtu n ityto p a rticip a te i n t he rul e maki ng t hr ough s ubm i s s i on of w r i t t en dat a, vi ew s , or a rg u m e n ts w ith o r w ith o u t o p p o rt u n ity f o r o ra l p re s e n ta tio n .” I d. § 5 5 3 (c ). I n in terp re tin g th e se p ro v isio n s, c o u rts h a v e h e ld t hat i f t he s ubs t ance of an a gency ’ s fi nal rul e s t r ay s t oo farfr om t he des cr i pt i on co nt ai ned i n t he i ni t i al not i ce, t he age ncym ay have de pr i ved i nterested per s ons of thei rs t atut oryr i ghtt o an o p p o rt u n ity to p a rt ic ip a te in th e ru le m a k in g . E

. g. , Long I s l and C ar e at H om e, L td. v. C oke , 551 U

. S. 158, 174 ( 2007) ( “The C our t s of A ppeal s have ge ner al l yi nt erpr et ed thi s t o m ean that t he fi nal rul e the agenc y adopt s m us t be ‘ a l ogi cal out gr ow t h’ of t he rul e pr opos ed. T he obj ect , in sh o rt , i s one of f ai rnot i ce. ”)32 ( quot i ng Na t ’ l Bla c k

Me d i a Co a l

. v . FCC , 791 F. 2d 1016, 1022 ( 2 d Ci r . 1 9 8 6 ) ; c i t i ng U ni t ed St eelw orker

s , A F L- C IO

- C LCv. Ma rs h a ll , 647 F. 2d 1189, 1221 ( D

. C

. C i r . 1980) and S. Ter m i nal Cor p . v . EPA , 504 F. 2d 64 6 , 6 5 9 ( 1s tC i r . 1974) )

. T he pr i nci pl es governi ng j udi ci al r evi ew of not i ce- and- comm ent rul emaki ng ar e w el l es t abl i s hed. A s t he C our tof A ppeal s for th e D istric t o f

C o lu m b ia C irc u it h a s p u t it : [n ]oti ce req u ir em en ts are d esig n ed (1) to e n su re th a t ag e n c yre g u latio n s a re tes ted v ia e x p o su re to d iv e rse p u b lic co m m e n t, (2 ) t o e n su re f a irn e ss to aff ect ed part i es , and ( 3) t o gi ve af fec t ed part i es an o p p o rtu n ityto d e v e lo p e v id e n c e in th e re c o rd to s uppor tt hei robj ect i ons t o t he rul e and ther eby enhanc e the qual i t yof j udi ci al r evi ew . W hi l e an agen c yma yp r o mul g a t e f i n a l ru l e s t h a td i f

fer fro m t he pr opos ed rul e, a fi nal rul e i s a l ogi cal ou t g r o wt h o f

a p r o p o s e d ru l e o n l yi f i n t e r e s t ed par t i es s houl d have a nt i ci pat ed thatthe cha nge w as pos s i bl e, and thus r eas onabl ys houl d have fi l ed thei rcomm ent s on t he s ubj ectdur i ng t he not i ce- and- comm entper i od[. ] T h e ‘ l ogi cal o u tg ro w th ’ d o c trin e d o e s n o t ex ten d to a f in a l ru le th a t is a b ra n d n e w ru le, s in c e so m e th in g is n o t a lo g ica l o u tg ro w th o f

n o th in g , n o r d o e s it a p p ly w her e i nt er es t ed part i es w oul d have had t o di vi ne t he A gency ’ s uns poken thought s , beca us e the fi nal rul e w as s urpr i s i ngl ydi s t antfr om t he p ro p o s e d ru le [ .]33 In t’l U n io n , U n itedMin e W

o rke rs v . Min e S a

fety & He a lth A dm in
. , 4 0 7 F

. 3d 1250, 1259- 60 ( D

. C

. C i r . 2005) ( i nt ernal q u o tat ion m ark s, b rac k ets, an d cit ati o n s o m itted).

2

. T he A rbi trary- an d-C ap ri ci ou s St an da rd An o t h e r p o r t i o n o f

t h e APA, c o d i f

i e d a t5 U. S

. C. § 706( 2) , pr ovi des t haton a pet i t i on forr ev iew o f an age ncy act i on, t he r evi ew i ng cour ts hal l deci de al l r el evant ques t i ons of l aw , i nt erpret c ons t i tut i onal and s t atut or ypr ovisi ons , and det erm i ne the meani ng orappl i cabi l i t yof the t erm s of an a gencyact i on. T h e re v iew in g c o u rt sh a ll—

. . . ( 2) hol d unl aw ful and set asi de age ncyact i on, fi ndi ngs , and conc l us i ons found t o be— ( A ) arbi t r ary , capr i ci o u s, an abus e of di s cr et i on, orot herw i s e not i n acc or dance w ith la w . . . . T he Supr eme C our thas s t at ed that [t ] he s cope of

r evi ew und er t he ‘ arbi t r aryand capr i ci ous ’ s t andar d i s narr ow and a c our ti s not t o s u b s t i tu t e i t s j u d g m e n tf o rt h a to f

t h e a g e n c y. N ev erthel es s , t he age ncym us texami ne the34 relev an t data a n d arti cu lat e a sati sfa ctory expl anat i on forit s act i on i ncl udi ng a r at i onal connec t i on betw een the fa ct s found a n d t he c h o i c e ma d e . I n r e v i e wi n g t h a te x p l a n a t i o n , we m us tcons i der w hether t he dec i s i on w as bas ed on a co n si der at i on of the r el evantfac t or s and w h e th e r th e re h a s b e e n a c lea r erro r of ju d g m e n t. N or m al l y , an age ncy rul e w oul d be arbi t r aryand ca p ri ciou s if

the a g en cyh as re li ed o n fa ctors w h ich C o n g re ss h as n o t i n tend ed itto co n side r, ent i r el yfai l ed t o cons i der an i m por t ant as pectof th e p ro b lem , o f

f e re d a n e x p lan a tio n f o r its d ec isi o n that run s co u n ter to th e e v iden ce b ef o re t he age ncy , ori s so im pl aus i bl e thati tcoul d not be asc r i bed t o a di ffe r ence i n vi ew ort he pr oduct o f a g e n c y e x p e rtise

. T h e re v iew in g c o u rt sh o u ld notat t empt i t s el f t o m ake up f ors uch defi ci en cies: [w ] e maynots uppl ya r eas oned b a sis f o r th e a g e n c y ’s a c tio n th a t th e a g e n c yitse lf has notgi ven. W e w i l l , ho w ev er , uphol d a d ec isi o n o f les s tha n idea l cl arityif th e a g en cy ’s path m ayr eas onabl ybe di s cerned. Motor V ehicl e M f rs. A ss’ n o

f U

. S. v. Stat e Farm Mut. A uto. Ins. C o. , 463 U

. S. 29, 43 ( 1983) ( i nt ernal quot at i o n m arks and ci t at i ons om i t t ed)

. I n s i tuat i ons w her e “a n agenc yhas engage d in lin e -d ra w in g d e ter m in a tio n s[ ,] . . . o u r re v ie w is n e c e ss a rily defe rent i al t o agency exp ert i se, ” bu t t he agenc y ’s act i on s m ust s t i l l “not b e ‘ pat ent l yunr eas onabl e’ orrun count ert o t he evidenc e bef

or e the age ncy . ” P r om etheus R adi o P r oj ect v. FCC , 3 7 3 F

. 3 d

. 3 7 2 , 3 9 0 (3d C ir

. 2 0 0 4 ) (cit ati o n s o m itted).35 B . V a lidity o f th e 2 5 % A ttrib u tio n R u le 1

. N ot i ce and Com m ent

C om pl i ance W i t h t he for egoi ng l egal pr i nci pl es i n m i nd, w e now cons ider t he rul emaki ng ati s s ue, begi nni ng w i t h the 25% a t t r i b u t a b l e r e l a t i o n s h i p ru l e . As n o t e d p r e v i o u s l y , 4 7 C. F. R. § 1. 2110( b) ( 1) ( i ) and ( b) ( 3) ( i v) ( B ) pr ovi de that , i f a D E l eas es o r res el l s (i ncludi ng at w ho l esal e) m ore t han 25 % of its s pectrum capa ci t yt o any s i ngl e l es s ee or pur chas er , i t m us tadd th a t les se e ’s o r pu rc h a se r’s re v e n u e s to its o w n to d e ter m in e its c o n tin u e d e lig ib ili tyf

o r D E c re d its. P e tit io n e rs c laim th is ru le w as not adequa t el y not i ced i n t he F N PR , beca us e the FN PR w as focus ed on a v o i d i n g d o mi nat i on of D E s byl ar ge comm uni cat i ons compani es , and made no m ent i on of pl aci ng l i m i t s on al l l eas es t o anyl es s ee. W e di s agr ee. A s w e des cr i bed pr evi ous l y , t he FN PR expl i ci t l ys ought comm enton w hethe rth e FCC’ s d e f i ni t i on of r es t r i ct ed “mat er i al rel at i on shi ps” shou l d incl ud e spect rum l easi ng arr ang em ents , and a l s o a s k e d whetherot herr el at i ons hi ps s houl d be cons i der ed. M o re o v e r, th e F N P R so licite d c o m m e n t o n h o w lar g e a n e n tity m us tbe befor e i t s r el at i ons hi ps w i t h D E s become pr obl emat i c. I n o u rv i e w, b yl i mi t i n g t h e p e r mi s s i b l e c o mb i n e d s i z e o f a DE a n d e n ti ties to w h ich it l e a se s o n e -q u a rte r o r m o re o f its sp e c tru m , th e f

in a l ru le sq u a re ly a d d re ss e s the se c o n c e rn s. It is t rue t hat , by adopt i ng t he at t r i but i on appr oach, t he rul e foc us es not on t he si ze of the r el at ed ent i t y , butr atheron the com bi ned s i ze of t he D E i t s el f and the r el at ed ent i t y . B utw e r egar d t hi s as a l ogi cal out gr ow t h of the or i gi nal rul e’ s focus on ens ur i ng t hat th e C o m m iss io n ’s “ sm a ll b u sin e ss p ro v isio n s . . . b e a v a ilab le36 onl yt o b o n a fide s m al l bus i nes s es . ” FN PR , 21 F. C

. C

. R

. at 1 7 5 7 , 1 7 6 7

. T h ere fo re, w e find n o d ef ec t o f no ti ce in the F C C ’s enac t m entof the 25% at t r i but i on rul e.

2. A r bi tr ar

y and C apr i ci ous R evi ew Pet i t i oner s al s o ar gue that t he 25% rul e i s arbi t r aryand c a p ric io u s, b e c a u se th e F C C m a d e n o f in d in g s o n th e im p a c t it w oul d have on the abi l i t yof D E s t o pr ocur e fi nanci ng. A ccor di ng t o Pet i t i oner s , t he F C C coul d nothave a r t i cul at ed a r at i onal conne cti on betw een the conc l us i on r eac hed and the f a c ts f o u n d , b e c a u se it fo u n d n o f a c ts a t all. T hi s ques t i on i s a cl os e one. Pet i t i oner s ar e corr ectt hat t he F C C m ade few fac tual fi ndi ngs on t he i m pactof the new r ul es o n DE f

i n a n c i n g . Th e Commi s s i o n d i d o b s e r v e t h a t “a gr ow i ng num ber ” of r el at i ons hi ps r equi r ed r egul at i on i n or der t o prev en t unj us tenr i chment

. Second R & O , 21 F. C

. C

. R

. at 4762. I tal s o r el i ed on i t s “expe r i ence i n admi n ist eri ng t he des i gnat ed ent it ypr ogr am” i n det erm i ni ng t hatfur t herrul es w ere req u ir ed

. I

d. a t4 7 6 2 , 4 7 6 3

. T h e S e c o n d R &O ackno w ledged t he conc erns of s ever al comm ent er s aboutt he i m pact any new rul es w oul d have on t hei r ca p i t al i zat i on a rr a n g e m e n ts , s ee i d. a t 4 7 6 1 & n .6 5 , b u t th e o n lysta tem e n t in t he Second R & O even appr oachi ng a fi ndi ng i n thi s r egar d w as a re c ita l th a t th e n e w ru les w o u ld p ro tec t th e a b ili tyo f D E s to rai se fun ds, id

. at4764 ( “w e . . . ens ur e that [ D E s w il l r et ai n] fl exi bi l i t y t o engage i n agr eement s t hatar e i nt ended t o pr ovi de [th em ] w ith ac ce ss to v alua b le ca p it al”).37 O n the o ther h an d , the re co rd re flec ts th e F C C ’s cogni zan ce o f the ca pi t al i zat i on i s s ue, and thati tengage d i n a l i ne- dr aw i ng exer ci s e i n an att empt t o pr eventunj us tenr i chment w i t houtundul yi m pai r i ng D E s ’ capi t al acc es s . I n the FN PR , t he F C C e x p li c it ly“ re c o g n ize [ d ] th a t w e m u st s trik e a d e lica te b a l a n c e b e t w e e n e n c o u r a g i n g th e p a r t i c i p a t i o n o f [ g e n u i n e l y] s m al l bus i nes s es . . . and ens ur i ng thatt hos e s m al l bus i n esses w h o d o p a rt ic ip a te . . . h a v e s u f f ic ie n t c a p ita l a n d f

le x ib ility,” FN PR , 21 F. C

. C

. R

. 1757, and sol i ci t ed com m ent on thi s i s s ue, i d. at1767. M or eover , alt h o ugh the FC C s ol i ci t ed comm ent s fr om th e D E a n d in v e stm e n t co m m u n iti e s w ith re sp e c t to th e e f f e c ts o f a ru le c h a n g e o n D E s’ c a p italiz a tio n , this so rt o f p re d ictio n is i nher ent l ys pecul at i ve. I n t hi s r egar d, w e fi nd thi s cas e s i m i l ar t o F C Cv . N

a tio n a l C itiz e n s C o m m itte e fo rB r o a dc a s tin g, 436 U

. S

. 7 7 5 (19 7 8 ) (he reina fter NCCB )

. I n NCCB , t he Sup r e me C our tr evi ew ed an FC C rul e prohi bi t i ng comm on ow ner s hi p of n e w sp a p e rs a n d T V sta tio n s w h e re o n ly o n e o f e a c h e x iste d in th e re le v a n t g e o g ra p h ic m a rk e t. I d. a t 7 9 6

- 9 7

. Al t h o ugh t he C o u rt f o u n d it “in c o n c lu siv e ” w h e th e r th e ru le w o u ld a c tu a lly achieve its st at ed g oal of i ncreasi ng t he d i versi t yof b roadcast p ro g ra m m in g , i d. , i t decl ar ed t hat “[i ] n t hes e ci r cumst ance s , t he C om m i s s i on w as ent i t l ed t o r el y o n i t s j udgm ent , bas ed on e x p e r i e n c e , t h a ti ti s u n r e a l i s t i c t o e x p e c ttru e d i v e r s i t yf r o m a comm onl yow ned s t at i on- new s papercombi nat i on. T he di ver gency of t hei r vi ew poi nt s cannot be expec t ed to b e t he s a m e a s if th e y w e re a n ta g o n is tic a lly ru n .” I d. at797 ( i nt ernal q u o tat ion m ark s an d cit ati o n o m itted).38 A l s o ati s s ue i n NCCB w a s th e F C C ’s d e c isio n n o t to g i v e t h e n e w ru l e s r e t r o a c t i v e a p p l i c a t i o n wi t h r e s p e c tt o s o me m arket s . T hi s w as bas ed on t he F C C ’ s conce r n thatr etr oact i ve a p p l i c a t i o n mi g h tr e s u l ti n a l o s s o f l o c a l o wn e r s h i p o f

s o me br oadca s t s t at i ons , r equi r e t he re pl ace m entof i ncumbents t at i on ow ner s w ho had per form ed except i onal l y w el l , orfor ce e xi s t i ng o w n ers to se ll their stat ion s at a l o ss and thu s d isco u rag e f u ture in v e s tm e n t in q u a lity p ro g ra m m in g . I d. at8 1 3

. T he C our tof A ppeal s found thi s deci s i on arbi t r ary , beca us e t he re cor d di d not i nd i cat e t he ext ent t o w hich these prob l em s w ou l d actual l yari se if t he di ves t i tur e r equi r ementw er e appl i ed ac r os s the boar d. T he Supr eme C our tr ever s ed, expl ai ni ng that to the ex tent that fa ctua l determ ination s w ere in v o lv e d in th e C o m m iss io n ’s d e c isio n to “gr andfa t her ” mostexi s t i ng com b ina t i ons , they w er e pr i m ari lyof a j udgm ent al orpr edi ct i ve natur e— e. g. , w hethera di ves t i tur e r equi r ement w o u ld re su lt i n tra d in g o f s ta tio n s w ith o u t-o f -to w n o w n e rs; w h e th e r n e w o w n e rs w o u ld p e rf o rm a s w e ll as e x istin g c ro ss o w n e rs, e ith e r in th e sh o rt ru n o r i n th e lo n g ru n ; w h e th e r lo ss e s to exis t i ng ow ners w ou l d resu lt f rom forced sal es; w h ethe r suc h losse s w o u ld d is c o u rag e f u ture i nves t m enti n qual i t ypr ogr amm i ng; and w hether new o w ner s w oul d have s uffi ci entw or ki ng capi t al t o fi n an ce l ocal pr ogr amm i ng. I n s uch ci r cu m st ance s compl et e fa ctual s uppor ti n t he r ecor d fort he C om m i s s i on’ s j u dgm entor pr edi ct i on i s notpos s i bl e orr equi r ed; a for eca s tof t he di r ect i on i n w hi ch futur e publ i c i nt er estl i es39 nece s s ar i l yi nvol ves deduct i ons b as ed on the e x p e r tk n o w l e d g e o f

th e a g e n c y. I d. (i n terna l qu o tat ion m ark s an d cit ati o n o m itted). L i ke i n NCCB , her e the F C C ’ s att empt s atfac t fi ndi ng r el evantt o t he i m pactof i t s p roposed rul es on D E fi nanci ng w er e thi n, perhaps beca us e of i t s has t e i n p rom ul gat i ng rul es befor e A uct i on 66. A s a re s ul t , t he C om m i s s i on’ s cons i der at i on of the mat t eri s nei t heras cl earnoras t hor ough as w oul d be idea l. N onethel es s , i n l i ghtof the gr eatdefe r ence t o agenc y exper i ence t hatw e ow e “w her e t he i s s ues i nvol ve ‘ el us i ve’ and ‘n o t e a s ily d e f

in e d ’ a re a s ” s u c h a s t h is , P ro m e th e u s R a d io P r oj ect , 373 F. 3d. at390 ( quot i ng Si nclai rB r oad. G r oup v. FCC , 284 F. 3d 148, 159 ( D

. C

. C i r . 2002) ) , w e concl ude t hatthe F C C off ered eno ug h co nsi derat i on of D E capit al i zat i on t o p ass t he arbi t r aryand ca pr i ci o u s thr es hol d w i t h r es pectt o the 25% at t r i but i on rul e. F o r th e se re a so n s, w e w ill d e n yth e p e tit io n in so f a r a s it chal l enges t he 25% at t ri but i on rul e, and uphol d the val i di t yof 4 7 C

. F

. R

. § 1

. 2 1 1 0 (b)(1 )(I ) an d (b)(3 )(i v )(B ). C . T h e 5 0 % Imp e rm iss ib le-R e la tio n sh ip R u le 1

. N ot i ce and Com m ent C om pl i ance W e nextcons i der4 7 C. F. R

. § 1. 2110( b) ( 3) ( i v) ( A ) , w hi ch m a k e s li c e n se a p p lica n ts or h o ld e rs in e lig ib le f o r D E b e n e f

its if t heyl eas e or r es el l ( i ncl udi ng atw hol es al e) m or e than 50% of th e ir sp e c tru m c a p a c ity

. A sid e f ro m th e d if

f e re n c e in40 p e rc e n tag e s, th is ru le d iv e rg e s f ro m th e 2 5 % a ttribu tio n ru le in tw o c ru c ial w a y s. F irst, th e 50 % i m perm iss ib le- re latio n sh ip ru le cons i der s t he aggr egat e p o rtio n o f sp e c tru m c a p a c ityth a t a lice n se e h a s le a se d o r re so ld , rath e r th a n th e p o rtio n o f c a p a c ity l eas ed t o an i ndi vi dual l es s ee as does t he 25% rul e. Second, the 50% rul e i s a per se di s qual i fi cat i on fr om D E s t atus , r atherthan a m ere attri b u ti o n req u ir em en t. T h ese tw o ch ar a c te ri sti cs a re t he es s ent i al el ement s of the rul e. T he aggr egat i on el ementof the 50% rule w as not m ent i oned i n t he FN PR , nor , i n our vi ew , can i t be r egar ded as a l ogi cal out gr ow th o f the conce r ns addr es s ed ther ei n. T he F N P R w a s f

o c u se d o n e n su rin g th a t a D E re m a in s a g e n u in e ly sm a ll b u s in e ss , rath e r th a n a f ro n t en tityc o n tro lled o r h e a v ily i nfl uence d bya l ar ge ent it y that i s notel i gi bl e forbi ddi ng c re d its. A s w e n o ted , th e 2 5 % a ttribu tio n ru le a d d re ss e s th is conce r n d ir ect l ybyl i m i t i ng t he al l ow abl e combi ned s i ze of group s of rel at ed li cense h older s or user s w h ich incl ud e D E s. B ycontr as t , beca us e the 50% rul e i nvol ves aggr egat i on of al l of a D E ’ s l eas e or r es al e agr eement s , i t w oul d denyD E s t atus t o a s m al l company t hat l eas es or r es el l s 5. 1% of i ts spe ctrum c a p a c ityto e a c h o f

ten o th e r c o m p a n ies , reg a rd les s o f h o w sm a ll th o se les se e s o r bu y e rs, or a ll o f th e m c o m b in e d , m ig h t b e . It i s t rue, of cour s e, t hatt hi s aggr egat i on rul e al s o s t ri ps D E s t atus from sm al l bu si nesses t hat l ease or res el l al m ost al l of th e ir s p e c t ru m t o s e v e r a l l a r g e c a r r i e r s , i n c h u n k s o f j u s tu n d e r2 5 %. B utw e fi nd no bas i s i n t he r ecor d t o concl ude thatei t hertype of arr angementw oul d thr eat en t o gi ve any s i ngl e l ar ge buy eror lessee

— o r D E -bu y er-lessee g rou p ing

— u n d u e i n flu en ce o v er a DE i n t h e m an n e rt h e FNPR s o u g h tt o a d d r e s s . I n s t e a d , DEs t hat run afou l of the 5 0% rul e m ayoften em ploya bu si ness41 m od el rel y i ng on a l arge nu m ber of rel at i velysm al l -sc a le t ransact i on s w i t h a g roup o f t hir d p art i es w ho com pete agai nst eac h ot heri n t he w i r el es s s erv ic es m arket

. W e r egar d t hi s as exac t l yof the ki nd of D E i ndepe n d ence thatthe FN PR w as conce r n e d wi th p r e s ervi ng, and the r ecor d cont ai ns no i ndi cat i on t o t h e c o n t r a r y. I ndeed, as w e des cr i bed above , the Second Repor tand O r derm akes cl eart hatt he FC C ’ s r eal conce r n i n pr om ul gat i ng t h e 5 0 % i mpe r mi s s i b l e - r e l a t i o n s h i p ru l e was n o t t o p r e v e n tDEs fr om bei ng undul yi nfl uence d byl ar ge ent i t i es orgr oups of ent i t i es , butr atherw as t o ens ur e thatD E s ar e pr i m ar i l yengage d i n offer i ng w i r el es s s ervi ces t o t he publ i c. B utthe FN PR had nots o m uch as hi nt ed t h at t hi s w as t he obj ect i ve of the rul emaki ng: i tm ent i oned “s ervi ce t o the publ i c” onl ytw i ce, b o th tim e s in th e c o u rse o f d e sc rib in g th e F C C ’s o b lig a tio n to ens ur e t hat D E s have acc es s t o capi t al t o hel p them provi de s uch s e rv ic e . See FN PR , 21 F. C

. C

. R

. 1753 at175 7, 1767. I ns t ead, as w e have expl ai ned, t he FN PR w as focus ed on mai nt ai ni ng t he i nd epen den ce of

D E s fr om l argerenti t i es. W e a lso f

in d it i n stru c tiv e th a t th e F C C h a d p re v io u sly s ol i ci t ed br oadercomm enton the perm i s s ibil it yof l eas i ng a r r a n g e me n t s i n v o l v i n g DEs , a n d i n mu c h mo r e s p e c i f i c t e r ms t han i tdi d her e. I n 2003 t he FC C i s s ued a R epor tand O r derand Furthe r N ot i ce of

Pr opos ed R ul emaki ng i n I n r e Prom ot i ng E ffi c ien t U

s e o f S p e c tru m T

h ro u g h E lim in a tio n o

f B a rr iers to th e D e v e lo

p m e n t o f Se c o n da ry Ma rk e ts , 18 F. C

. C

. R

. 20, 604 ( O ct ober6, 2003) , i n w hi ch i ts i gni fi cant l yr el axed pr evi ous r es t r i ct i ons

— w hi ch had a ppl i ed t o D E s and non-D E s al i ke— on t he l eas i ng orr es el l i ng of s pectrum l i censes. I n pr om ul gat i ng42 th is c h a n g e , the F C C sta ted it h a d “ so u g h t to e n su re th a t it s appr oach w o ul d noti nvi t e ci r cumvent i on of the under l y i ng p u rp o s e s o f th e s e d e s ig n a te d e n tity-r e la te d p o lic ie s a n d ru le s ,” i d. at20, 627, and s um m ar i zed the ext ens i ve comm ent s i t ha d re c e iv e d d ir e c t l y a d d re s s in g b o th s id e s o f th e is s u e , i d. at 20, 629, befor e conc l udi ng that [a] des i gnat ed ent i t yand/ or entr epr eneurl i cens ee m ayl eas e to anys pectrum l es s ee a nd avoi d t he appl i cat i on of ourunj us tenr i chmentrul es and/ or t r an sferr es t r i ct i ons s o l ong as the l eas e does not r es ul ti n t he l es s ee be comi ng a ‘c ontr ol l i ng i nt er es t ’ or aff

i l i at e t hat w oul d caus e the l i cens ee t o lose i t s desi gn at ed en t i t yor ent repr eneu r s t atus. I d. at20, 654- 55. T he C om m i s s i on al s o s oughtcomm enton pos s i bl e furt herrul emaki ng, as ki ng: [s ] houl d w e r equi r e a l es s ee t o be el i gi bl e fort he s ame level of compet i t i ve bi ddi ng benef i t s , s uch a s b id d in g c re d its, as th e lice n se e f ro m w h ich it i s l eas i ng? Shoul d w e r equi r e onl yt hatt he l es s ee be qu al i fi ed t o hold t he li cense? If s o, do w e i m po se u n ju st e n ric h m e n t o b lig a tio n s o n a les se e th a t is qual i fi ed fora l es s erl evel of compet i t i ve bi ddi ng ben efi t s? Id

. at20, 698. I n t he fi nal rul e t hat emer ged fr om thi s addi t i onal p ro c e ss , the F C C re itera ted th a t D E s w e re f re e to lea se th e ir sp e c tru m so lo n g a s th e ym e t th e re q u ire m e n ts a p p lica b le to a ll li c e n see s. S ec o n d R ep o rtan d O rde r I n r e Prom ot i ng E

f f i ci entBe c a u s e we f i n d t h e n o t i c e i n v a l i d u n d e r t h e AP A, we 8 do notr eac h the ques t ion of w hethert he rul e w as arbi t r aryor 43 U s e of Spectr um thro ugh E l i m i nat i on of B ar r i ers t o the D e v e lo p m e n t o f Se c o n da ry Ma rk e ts , 1 9 F. C

. C

. R

. 17, 503, 17, 543- 44 ( 2004) ( “[W ] e w i l l

. . . amend t he l anguage of our rul es t o clar i fyt hat, subjectt o the ot her el i gibi l i t y res t ri ct i on s .

. . a des i gnat ed ent i t y or entr epr eneur l i cens ee m ayent eri nt o a s pectrum m anagerl eas i ng arr angementw i t h anys pectrum les se e , re g a rd les s o f th e les se e ’s e lig ib ili ty f o r de sig n a ted e n tity o r en tr ep ren eu r be n ef

it s. ”). T he contrast c o ul d notbe more s t ark betw een the t r ans par entdi s cus s i on of D E l eas i ng r i ght s fr om 2003- 04 on the one hand, and t he run up t o t he rul es pr om ul gat ed i n 2006 byt he Second R & O on t he ot her

. T he FN PR her e gave no i ndi cat i on th a t th e F C C in ten d e d to re v isit an iss u e it h a d th o ro u g h ly addr es s ed onl yt hr ee y ear s befor e. C om m en ter s coul d not r e a s on a bl yha ve ant i c i pa t e d tha t , i n i nq ui r i ng i n the FN PR w hetherl easi ng arr ang em ents betw een D E s an d l arge w i rel ess carr i er s i m pai r ed t h e D E s ’ bona fi de s m al l bus i nes s s t atus , the F C C w a s p ro p o sin g to re v ise th e g e n e ra l lim its o n D E s’ a b ili ty t o leas e t heirspect rum t o an y on e atal l

. E ven i f t his w as the FC C ’ s i nt ent , “an une xpr es s ed i nt ent i on cannotconverta fi nal rul e i nt o a ‘ l ogi cal out gr ow t h’ t hatt he publ i c s houl d have ant i ci pat ed. ” Sh e l l Oi l Co. v . EPA , 9 5 0 F

. 2 d 7 4 1 , 7 5 1 (D

. C

. C ir

. 1991)

. A ccor di ng l y , w e hol d thatt he 50% i m perm i s s i bl erelati o n sh ip ru le, as c o d ifi ed at 47 C

. F

. R

. § 1

. 2 1 1 0 (b)(3 )(i v )(A ), w as pr om ul gat ed w i t houtt he not i ce a nd comm entr equi r ed by t h e AP A. 8capr i ci ous . N evert hel es s , w e not e the C om m i s s i on’ s i nat t ent i on t o t he natur e of the w i r el es s w hol es al i ng bus i nes s . B oth t he 25% and 50% rul es appl y t o w hol es al i ng of w i r el es s s ervi ces by D E s. T he record dis cl os e s th att o en gag e i n w i rel ess w h o les a lin g , a lic e n se e m u st do c o n sid e ra b ly m o re th a n o b tain and then l eas e orr es el l t he s pectrum l i cens e i t s el f. I ns t ead, t he w hol es al er m us tbui l d and oper at e the phy s i cal fac i l i t i es r equi r ed t o t r ans m i t and re cei ve w i r el es s s i gnal s , and t o t r ans fer t ho se sig n al s t o o r fr om othernetw orks or end u ser s. Iti s th is s ervice that i s s ol d atw hol es al e. T hi s r ai s es a s epar at e s etof q u e stio n s a n d c o n c e rn s f ro m th o se ra ise d w h e n a D E m e re ly m onet i zes it s cr edi t s orpar t ner s w i t h a l ar ge ca r r i er , thus r e n d e r i n g t h e D E ’ s s e p a r a t e e x i s t e n c e a m e r e f o r m a l i t y. G iv e n th e e x ten siv e p ro v isio n o f se rv ice s e n taile d in w ir eless w h o lesa lin g , itis no t atall o b v iou s tha t th e F C C ’s r at i onal e forthe 5 0 % im p erm issi b le-rel ati o n sh ip ru le— en s ur i ng t hatD E s offe rs ervi ce t o t he publ i c, r ather t han s i m pl yhandi ng th e ir s p e c tru m o v e r to lar g e r c a rrie rs— sh o u ld n e c e ss a rily r equ ir e pr ohi bi t i ng D E s fr om engagi ng pr i m ar i l yi n t he w h o les a le b u sin e ss , so lo n g a s th e yd o n o t s e ll o r le a se o v e rly large q u an ti ti es o f th eir cap ac ityto an ysing le les see o r bu y er. T he FC C appea r s t o have fai l ed t o even acknow l edge thi s i s s ue. W e comm end i tt o t he C om m i s s i on’ s at t ent i on on r emand. 44 D . T h e T e n Y e a r R e p a y m e n t S c h e d u le 1. N ot i ce and Com m ent

C om pl i ance45 W e las t tu rn to P e tit io n e rs’ c h a llen g e s to th e c h a n g e s to 4 7 C

. F

. R

. § 1

. 2 1 1 1 (d)(2 )(i ) th at ex tend ed fro m fiv e to ten y ea rs t he per i od dur i ng w hi ch a l i cens ee mustr epayi t s bi ddi ng c r e di t s , i n whol e or i n pa r t , i f i t l os e s i t s D E s t a tus . The FN PR pl ai nl yoffe r ed not i ce thatt he FC C w as t r y i ng t o det erm i ne the p r o p e rl e n g t h o f

t h e r e p a ym e n tp e r i o d a t t a c h e d t o a n y new DE q u ali fi c a ti o n s tha t i t m igh t ado p t. P eti ti o n ers a rgu e, ho w ev er, t hatt he FN PR di d noti ndi cat e that the F C C w as cons i der i ng c h a n g i n g t h e r e p a yme n tt e r ms a t t a c h e d t o th e n - e x i s t i n g DE qual i fi cat i ons . A s w e not ed pr evi ous l y , m uch of the pr ot es tt hat gr eet ed the new rul es w as di r ect ed t ow ar d thi s ext ens i on of the r epaym entt erm , and the al l eged l ack of not i ce of

thi s change

. T he FC C r es ponds bynot i ng thati thas neverat t ache d di ffe r i ng bi ddi ng- cred i tr epaym ents chedul es t o di ffe r ent q u a l i f i c a t i o n s f

o rDE s t a tu s , b e c a u s e th i s wo u l d p e r mi tDEs lo o k in g to e n ter in to su s p e c t re latio n sh ip s to stru c tu re th e ir arr ang ement s t o m i ni m i ze the pena l t yi nvol ved. T hus , t he C om m i s s i on m ai nt ai ns t hatbys ol i ci t i ng comm enton t he re p a ym e n t p e rio d a tt a c h e d to n e w re g u latio n s in th e F N P R , it i m pl i ci t l ypr opos ed cha ngi ng t he corr es pondi ng p eri od for exi s t i ng rul es . W e di s agr ee. N ot i ng ourdeci s i on i n W agner E l ectr i c C or

p. v. V ol pe , 4 6 6 F .2 d 1 0 1 3 (3 d C ir. 1 9 7 2 ), P e tit io n e rs a rg u e p e rsu a siv e ly t hat t hi s s or tof i m pl i ed not i ce i s i ns uffi ci entunl es s al l i nt er es t ed per s ons w oul d r eas onabl ybe expe ct ed t o per cei ve the i m pl i cat i on. I n W

a g n er , the N a tio n a l H ig h w a yT ra f f ic S a f e ty A dm i ni s t r at i on ( N H T SA ) had publ i s hed a not i ce of pr opos ed ru lem a k in g in w h ich it p ro p o se d to e lim in a te th e p e rm iss ib le fai l ure r at e for au to m o b il e turn si gn al s and w arni ng fl ashers

.46 T he ef fec tof thi s change w oul d have been t o r equi r e that100% of thos e pr oduct s m eet t he N H T SA ’ s s t andar ds forr egul ar i t yof fl ashi ng , du rabi l i t y , and otherfeatures. A ft er com m ents , h o w e v e r, th e N H T S A c o n c lu d e d th a t 1 0 0 % c o m p lian c e w ith its curr ent r egul at i ons w as t echnol ogi cal l y i nfea s i bl e. I n t he fi nal ru le, it n e v e rth e les s e n a c ted th e 1 0 0 % c o m p lian c e re q u ire m e n t, but deal t w i t h t he i nfea s i bi l i t y pr obl em bys i gni fi cant l yr el axi ng t he s ubs t ance of the s t andar ds

. O n rev iew , fac ed w i t h t he ar gum ent th ati t s not i ce of pr opos ed rul emaki ng had not pr es aged thi s change, t he N H T SA ar gued thatr el axi ng t he s ubs t anti ve s t andar ds w as a l ogi cal m eans of i ncr eas i ng t he compl i ance r at e, and not ed thats om e of the comm ent er s had a c tu a lly s u g g e s t e d a s m u c h

. Id

. a t 1 0 1 8 -1 9 . W e re jec ted th is arg u m en t, h o lding that ev en if so m e s o p h ist icated o b serv ers w oul d have s een the connect i on betw een t he s t r i ct ercompl i ance th a t h ad b een n oti ced an d the l ow er s t and ards eventual ly announce d, t he pr oper ques t i on under t he A PA w as w hethert he agenc yhad pr ovi d ed n ot i ce t o al l “i nt er es t ed part i es . ” I d. at 1019. W e hel d t hatt he i nfer ent i al not i ce purpor t edl ypr ovi ded b yth e N H T S A d id n o t s a tis f yth a t s ta n d a rd

. I

d. at1020- 21. H er e, t he FN PR s ol i ci t ed comm ent on t he l ength of the b i d d i n g - c r e d i tr e p a yme n ts c h e d u l e a t t a c h e d t o a n yn e w DE qual i fi cat i ons . Fr om t hi s

— and fr om t he fa ctt hatt he r epaym ent s c h e d u l e h a d p r e v i o u s l ya l wa y s b e e n u n i f o r m a c r o s s a l l DE q u a li f ic a tio n s— th e F C C a rg u e s th a t in ter e ste d p a rties sh o u ld have i nferr ed t hat t he re paym ent s chedul e foral l qual i fi cat i ons w as underr evi ew . A s i n W agner , thi s purpor t ed i nfer ent i al n o t i c e wa s i n s u f

f i c i e n tt o s a t i s f

yth e AP A.T he F C C al s o poi nt s t o C ounci l T r ee’ s ow n r eques tt hat 9 t h e p r e e x i s t i n g r e p a yme n t s c h e d u l e b e a p p l i e d t o a n ynew D E q u a lif ic a tio n s th a t m ig h t b e a d o p te d

. See C o m m e n ts o f C o u n c il T re e C o m m ’n s, In c ., J.A . 4 9 7 -9 9

. B u t th is d o e s n o t ev e n b e g in t o m ani fes tan unde rst an di ng byC ounci l T r ee thatthe pr eexi s t i ng s chedul e mi ghtbe changed

. 47 E ven i f the ki nd of i nfer ent ial not i ce the FC C advanc es w e re su f f ic ie n t u n d e r th e A P A , w e d o n o t f in d th e F N P R to pr ovi de s uch not i ce. N othi ng i n the r ecor d for ecl os es t he c o mm o n s e n s e c o n c l u s i o n t h a tb e c a u s e s o me v i o l a t i o n s o f DE sta tu s a r e m o re se rio u s th a n o th e rs, it w o u ld m a k e se n se to att ac h m o re stri n g en t pen alt ies t o them , in c lu d ing m o re se v ere bi ddi ng- cr edi tr epaym entr equi rem ent s . T hus , farfr om comm uni cat i ng t he nee d foran ac r os s - t h e-b o ar d r epaym ent per i od, t o m anyi nt er es t ed part i es , t he FN PR ’ s s ol i ci t ati on of comm ent s onl yo n t he r epaym ents chedul e fort he pr opos ed q u a lific a tio n s c o u ld w e ll h a v e a p p e a re d to b e a n a ttem p t to cal i brat e t he penalt i es for viol at i on s of t he n ew rul es w i t h those forvi ol at i ons of exi s t ing rul es . I ndeed, no comm ent er m ani fes t ed an unde r s t and ing t hatthe FC C w as cons i der i ng changi ng t he exi s t i ng r epaym ent s chedul e. T he onl ycomm ent er to su g g est ad o p ti n g a 1 0 -y ea r rep ay m en t period

— M M T C , a p e t i t i o n e r h e r e

— s p e c i f

i c a l l y s u g g e s t e d t h a tt h e F CC “ cons i der i nit i ati ngan i nq uir

y ” in to d o in g so , ap p a re n tlyin a n e n tirely s epar at e rul emaki ng. C om m ent s of the M i nor i t y M ed ia and T elec o m m ’ns C o u n cil , J. A

. at 58 6 (em p h asis ad d ed ). 9 A c c o rd in g ly , w e h o ld th a t th e 1 0 -y e a r re p a ym e n t sc h e d u le, to th e e x ten t ita p p lies to q u a lific a tio n s f o r D E sta tu s th a t w e re inA s w e s ta te d a b o v e , the re w a s m o re th a n a d e q u a te 10 n o t i c e t h a tt h e n e w r e p a ym e n t s c h e d u l e w o u l d a p p l y t o a n y new rul es adopt ed byt he FC C

. B eca us e w e l eave i nt actt he 25% rul e, t her e i s t her efor e no not i ce- or - comm entbarr i ert o t he 10- y e a r sc h e d u le’ s ap p lica tio n to th a t ru le. N o n e th e les s, w e f in d it n e c e s s a r yt o v a c a t e t h e 1 0

- y e a rs c h e d u l e i n wh o l e , b e c a u s e we s ee no w ay t o s ever t he FC C ’ s l egi t i m at e adopt i on of the 10- y ear s chedul e w it h r es pectt o t he 25% rul e fr om i t s unl aw ful appl i cat i on of the rul e t o ot hers i tuat i ons . T he Second R& O s et f o r th a s i n g l e r e p a yme n t s c h e d u l e t o g o v e rn a l l DE qu al i fi cat i on s, bo t h those creat ed i n t he S econ d R & O and tho se th a t p re e x is te d it. See 2 1 F. C. C. R. a t4 7 9 4 ; 4 7 C. F

. R. § 1 .2 1 1 1 (d )(1 ). T h u s, w e c a n s tr ik e d o w n th e re g u latio n a s it a p p li e s to th e p re e x istin g q u a lific a tio n s o n lyb yin v a lid a tin g it acr os s t he boar d. A l t hough w e do not r eac h Pet i t i oner s ’ cont ent i on t hatt he extended re pa yments c he du l e i s arbitraryand capri ci ou s, w e al so not e thatt he FC C does not appea r t o have thor oughl ycons i der ed th e im p a c t o f th e e x ten d e d re p a ym e n t sc h e d u le o n D E s’ a b ili ty t o r e t a i n f

i n a n c i n g . I n t h e Re c on s i de r a t i o n Or d e r , t h e F CC concl uded thata s hor t ert i m e t o li qui di t yof a D E ’ s s pectrum l i censes w as not necessary , becau se [i ] n a r ece nt l yconcl uded proc eedi ng addr es s i ng t he l eas ing of Educat i on B r oadca s tSer vi ce spect rum , a broad cross-s ect i on of co m m enter s,

48 eff ect befor e i t s enac t m ent , w as adopt ed w i t houtt he not i ce a nd c o mm e n tr e q u i r e d b yth e AP A. 10i nc l u d i n g a p r i v a t e e q u i t yi n v e s t me n tf i r m, su b m itt e d e v id ence th a t in su f f icie n t ca p ital w o u ld fl ow t o bus i nes s es t hatw antt o devel op that s p e c t ru m i f

t h e l e n g t h o f

s p e c t ru m l e a s e t e r ms w as l i m i t ed t o fi ft een y ear s . T hes e par t i es ar gued t hatl es s ees neede d acc es s t o t he spe ctrum for t hi r t yy ear s or m or e i n or dert o pr ovi de the n e c e ss a ryc e rta in tyto ju stif y c a p ital i n v e stm e n t in t h e b a n d

. Th e Commi s s i o n was ‘ p e r s u aded by [t hi s a r g u me n t ]

. [ Th e r e f o r e , ] we a r e n ot convi nced thatt he appr opr i a t e i n v e s tme nthor i zon f o r d e sig n a ted e n titysta tu s s h o u ld b e o n ly th re e to seven y ears . 21 F. C

. C

. R

. at6717- 18. Fr o m thi s comm ent , i ts eems thatthe F C C h as co n fu sed the m ax im u m p eriod fo r w h ich in v esto rs are w i l l i ng t o l ock up thei r capi t al ( befor e bei ng abl e t o l i qui dat e the sp e c tru m lice n se , in th e e v e n t th e D E p ro v e s u n p ro f itab le) w ith t he m i ni m um per i od nece s s ary for fi nanci er s t o turn a pr ofi ton a s u c c e s s f

u l i n v e s t m e n t i n e d u c a t i o n a l b r o a d c a s ts e r v i c e s . We comm end thi s i s s ue as w el l t o t he FC C ’ s at t ent i on on r emand. 49 III . Th e p r o p e r r e me d y r e ma i n s t o b e c o n s i d e r e d

. Th e F CC s u g g e s t s t h a t , t o t h e e x t e n twe f i n d th e ru l e s d e f

e c t i v e , we r emand t he mat t erw i t hou tvaca turt o perm i ti tt o corr ectt he d e f e c ts. P e tit io n e rs, b yc o n tra st, u rg e n o t o n lyth a t w e v a c a tePet i t i oner s acknow l edge thats ever al other much 11 s m al l erauct i ons have been conduct ed under t he new rul es , and t hat t he l ogi c of thei rpos i t i on w oul d al s o s uppor tr es ci s s i on of t hos e r es ul t s as w el l

. N evert hel es s , they reque s tnul l i fi cat i on onl yof A uct i ons 66 and 73. T he FC C , i nt ervenor s and a m ici also cont es tour 12 j ur i s di ct i on t o over turn the auc t i on r es ul t s . A s w e w i l l expl ai n, w e w o u ld d e c lin e to e x e rc ise a n y ju risd ictio n w e m a yh a v e to res ci nd t he au ct i on resul t s. A ccordi ng l y , w e w i l l no tadd res s this m att er f

u rth er. 50 th e ru les b e f

o re re m a n d , b u t a lso th a t w e e x e rc ise o u r e q u itab le author i t yt o r es ci nd A uct i ons 66 and 73. 11
P e t i t i o n e r s ’ p r o p o s a l i s vi g o r o u s l yo p p o s e d b yth e F CC and bys ever al i nt ervenor s and am i ci , i ncl udi ng s om e w i nner s of A ucti on s 6 6 and 73

. T he recor d gives no i nd i cat i on that these 12 i nt ervenor s and am i ci , orot herw i nner s of A uct i ons 66 and 73, w ere an ything b u t i n n o ce n t th ir d p arti es in relati o n to the F C C ’s i m pr operrul emaki ng. W e ar e thus l oath t o r es ci nd the r es ul t s of t he a u c t i o n s , s i n c e i twou l d i n v o l v e u n wi n d i n g tr a n s a c t i ons w ort h m or e than $30 bi l l i on, ups ett i ng w hatar e l i kel ybi l l i ons of dol l ar s of addi t i onal i nves tm ent s m ade i n r el i ance on t he res ult s, a nd ser i ou sl ydis rupt i ng exis t i ng or pl ann ed w i rel ess s ervi ce f

orunt ol d num ber s of cus t om er s . M or eover , the po ssi bil i t yof suc h lar ge-scale d i srup t i on i n w i rel ess comm uni cat i ons w oul d have br oadn egat i ve i m pl i cat i ons forthe p u b lic in ter e st in g e n e ra l.51 In a n a tte m p t t o ad d ress the se c o n ce rns, P eti ti o n ers s ugges tt hatw e nul l i fythe auc t i on resu l t s , butperm i tthe w inn ing b idd ers to k ee p their l icen ses u n less an d u n ti l th eyare w on byanotherbi dder at re
- auct i on. T hi s m i ghtm i t i gat e the chaos of a r es ci s s i on, buti tcoul d no t elim inat e the mass i ve uncert ai nt y , w ast e, and fr ozen de vel opm entt hatw oul d occur fr om t he t i m e of t he r es ci s s i on unt i l t he r e- auct i on w hi ch, as the FC C m i ghtw i s h t o adopt addi t i onal rul es befor e the r e- auct i on t o r epl ace t he ones ati s s ue her e, coul d be a si gni fi cantper i od of ti m e. A d d it ion all y , so m e of the in terve n o rs, w h o w ere w inn ers i n A uct i on 66 i n 2006, not e thatt he st at e of t he econom y and the cr edi tm arket s has change d dr amat i cal l ys i nce the auc t i on; cons equent l y , t hei r p art i ci pat i on i n anyr e- auct i on m i ghtbe im p ra c tica l o r im p o ss ib le. A r e -a u c tio n th u s w o u ld u n f a irly re q u ire th e se in ter v e n o rs to p a ysu m s th a t th e ym a yn o t h a v e in or der t o p r o t e c ti n v e s t me n t s t h e yh a v e a l r e a d yma d e , a nd perhap s canno trecoup w i t ho ut the relev a n tspect rum l i censes. U nder the s e ci r cumst ance s , w e conc l ude thati tw oul d be i m pruden tand un fai r t o o rderres ci ssi on of the aucti on res ult s. B utw e ar e al s o unr ece pt i ve t o t he FC C ’ s s ugges t i on that w e rem a nd t he mat t e rw i t ho utva c a t i ng t he c ha l l e ng e d rul e s. T he FC C ar gues w e ar e author i zed t o do s o bas ed on a ba l anci ng of “the s er i ous nes s of the .

. . defi ci enci es ( and thus the ext ent of doubtw hethert he agenc ychos e corr ect l y ) and the di s rupt i ve c o n s e q u e n c e s o f

a n in te ri m c h a n g e th a t m a yits e lf b e c h a n g e d ,” Cha mbe ro

f Comm e r c e o

f U. S

. v . S EC , 4 4 3 F

. 3 d 8 9 0 , 9 0 8 ( D. C. C i r . 2006) ( quot i ng A l l i ed-Sign al, Inc. v. N uclear R egu l atoryPet i t i oner s ar gue thatw e ar e r equired t o vaca t e any 13 rul e s w e fi nd i n vi ol a t i on of t he A PA , po i nt i ng ou ttha tthe A PA re q u ire s u s to “ h o ld u n la w f u l and s et

as i de ” anys uch age ncy a c t i o n . 5 U. S. C. § 7 0 6 ( 2 ) ( e mp h a s i s a d d e d )

. Th e F CC, h o w ev er, ci tes t o a c ase in w h ich w e rem an d ed w ith o u t vac atur, al bei tw i t houtcomm ent i ng on t he i s s ue. See A m . I r on & Steel I n s t
. v . EPA , 568 F. 2d 284, 310 ( 3d C i r . 1977)

. B eca us e w e fi nd re m a n d w ith o u t v a c a tu r to b e in a p p ro p ria te o n th e f a c ts o f th is c a se , w e e x p re ss n o v iew a s to w h e th e r w e a re a u th o riz e d to o r d e rt h i s r e m e d y. Be c a u s e we wi l l l e a v e i n p l a c e 2 1 C. F

. R. 14 § 1. 2 1 11( d) ( 1) , w hi ch makes t he r epaym ents chedul e of § 1. 2111( d) ( 2) ( i ) appl i cabl e t o vi ol at i ons of the new 25% at t r i but i on rul e w hi ch w e al s o l eave i n pl ace , vi ol at i ons of the 25% rul e w i l l al s o be gov ern ed byt he pr eexi s t i ng fi ve- y ear s chedul e. 52 C o m m ’n , 988 F. 2d 146, 150- 51 ( D

. C

. C i r . 1993) )

. W e fi nd t he 13 defi ci enci es i n t he chal l enged rul emaki ng t o be s er i ous . O n the o th e r hand, vacat i ng t he 5 0% i m perm i ssi ble r el at i on shi p rule w i l l m ean t hat D E s w i l l be fr ee t o l eas e orw hol es al e as m uch of t hei r sp ec t rum as t heyw i s h, s ubj ectt o r evenue at t r i but i on s houl d t hey l eas e orw hol es al e more t han 25% of thei rs pectrum to a si ng l e enti t y . V acat i ng the 1 0-y ear- ho l d rul e w i l l sim p ly m ean thatD E s ’ r epaym entobl i gat i ons w i l l on ce agai n be governed by t he pr evi ous 5- y ears chedul e. S e e A b i n g t o n Me m. 14 H os p. v. H eckl er , 750 F. 2d 242, 244 ( 3d C i r . 1984) ( ci t i ng Ac t i o n o n Smok i n ga n d

Hea l th v . CAB , 7 1 3 F

. 2 d 7 9 5 , 7 9 7 ( D. C. C i r . 1983) , fo r the pr opos i t i on t hat“vac at i ng orr es ci ndi ng53 i nval i dl ypr om ul gat ed r egul at i ons has t he ef fec t o f re i ns t at i ng p ri o r reg u lat ion s”); P a u lse n v . D a n iels , 4 1 3 F .3 d 9 9 9 , 1 0 0 8 (9 th C ir. 2 00 5) ( “T he ef

fectof invali dati ng an ag encyrul e i s to r ei ns t at e the rul e pr evi ous l yi n for ce. ”)

. W e do notr egar d ei t her of thes e s i tuat i ons as l i kel yt o cr eat e anys er i ous disru p t i on. A ccor di ngl y , ev en as s um i ng w e have the author i t yt o r emand t he mat t erw i t houtvaca tur, w e w o u l d decl i ne t o do s o her e. I ns t ead, w e w i l l vaca t e the 50% and 10-y ea r ru le s and r emand t h e ma t t e rt o t h e F CC. I V. I n s um , t he FC C ’ s 25% at t r i but i on rul e w as pr om ul gat ed aft ert he publ i c not i ce and opportuni t y t o comm entr equi r ed by t he A PA , and i s notarbi t r ary an d capr i ci ous . T he 50% i m perm i s s i bl e- r el at i ons hi p rul e, how ever , w as pr om ul gat ed w i t houtt he r equi s i t e not i ce a nd op p o rt uni t yt o comm ent
. T he 10- y earbi ddi ng- cr edi tr epaym ent schedul e l i kew i s e w as pr om ul gat ed i n s ubs t ant i al and inseve r abl e partw i t houtnot i ce o r c o m m e n t. A c c o rd in g ly , w e w ill d e n yth e p e tit io n w ith r es pect t o t he at t r i but abl e- m at er i al

- r el at i ons hi p rul e art i cul at ed i n 47 C

. F. R

. § 1. 2110( b) ( 1) and ( b) ( 3) ( i v) (B ). W e w i l l gr ant t he pet i t i on w i t h r es pectt o the i m permi s s i bl e mat er i al r e l a t i o n s h i p ru l e c o n t a i n e d i n 4 7 C. F

. R. § 1

. 2 1 1 0 ( b ) ( 3 ) ( i v ) ( A) and t he 10- y ear - hol d r u l e c o n t a i n e d i n 47 C .F .R .§ 1 .2 1 1 1 (d ) ( 2 ) ( i). W e w ill v a c a te th e im p e rm iss ib le m at er i al r el at i ons hi p rul e and th e 1 0 -y ear - hol d rul e, or derthe r e i n s t a t e me n to f

t h e p r e v i o u s v e r s i o n o f 4 7 C. F

. R. § 1. 2111( d) ( 2) , and r eman d the mat t ert o t he FC C forfur t her proceed i ng s.